Posted
Even by Elon Musk's standards, his Shanghai plan is
ambitious: take 86 hectares of muddy farmland on the outskirts of the
city's peninsula and start rolling out Chinese-made Tesla Model 3s
within a year.
Key points:
- China is the world's leader in the production and sale of electric vehicles
- Tesla CEO Elon Musk wants to produce cheaper electric cars in Shanghai for Chinese drivers
- He'll face competition from more than a dozen Chinese electric automakers already in the market
Few industry insiders believe such a time frame from turning the first sod to delivering the first car is realistic, but there are few entrepreneurs like Elon Musk.
"China does not have a man like Musk," said Jia Xinguang, a veteran Beijing-based auto-analyst.
"It's quite surprising how quickly his company is developing here," he said.
Elon Musk is not saying exactly how much he is raising to build the Shanghai "Gigafactory" but some analysts have put the total investment at $2.7 billion — much of which is coming from Chinese state banks.
Having only announced the deal in the middle of last year, he jetted in on a bleak rainy day in January to tour the sodden fields with Shanghai's mayor, planting Tesla's flag and declaring his factory will add to the city's beauty.
"This will arguably be one of the most advanced factories in the world of any kind, perhaps the most advanced," he said at the ground-breaking ceremony."It's very impressive to see the capabilities of Shanghai in building things, so we believe with the resources here, we can build the Shanghai Gigafactory in record time," Mr Musk said.
He said the Shanghai factory will only produce Tesla's 3 and Y models — the smallest and most affordable sedans, which the company is staking its future on.
The more Tesla makes, the less each one costs, and the more Musk sells.
"Some believe the production cost of a Model 3 in China is only half what it is in the US. So if the base model currently costs upwards of $35,000 in the US, maybe Tesla could get it as low as $20,000 in China in future," Mr Xinguang said.
"This would definitely have a huge impact on China's new energy vehicle market," he said.
Tesla cashes in on China's electric car boom
Mr Musk's China gamble is a no-brainer.
More than half the world's electric and hybrid vehicles are sold in China, and yearly sales are growing at a rapid rate despite a slowdown for petrol cars.
Electric vehicles (EVs) now make up close to 5 per cent of China's massive automobile market, and the Government wants them to account for one in every five new cars sold by 2025.
Some of the more bullish analysts believe China is on track to more than double that target, although a planned phase-out of government subsidies will likely curtail growth.
"Chinese buyers are quite sensitive to price, so reducing subsidies will almost certainly have an effect," said Cui Dongshu, the Secretary-General of China's Passenger Car Association.
China's electric ambitions were on full display this week with close to two dozen Chinese carmakers displaying electric sedans, SUVs and concept cars at the Shanghai Auto Show.
The Government is now finding other ways to push what it calls "New Energy Vehicles" (NEVs), including an innovative "cap-and-trade" scheme that punishes Chinese car manufacturers that don't make EVs.
While China lags some Scandinavian countries for the proportion of EVs on the roads, the policies and scale of the market have made it the centre of a cut-throat race among manufacturers to dominate the future of the global industry.
"I don't think it's risky for Elon Musk to make such a large investment in China," Mr Cui said.
"In Shanghai, the technology is advanced, the labour cost isn't very high and I think Tesla will co-exist harmoniously with domestic competitors."It helps that Tesla and Elon Musk are revered in China.
During one visit last year, a middle-aged egg-pancake seller became famous after Mr Musk bought one of her snacks and devoured it on the side of the road.
On a later visit, his traditional hot-pot dinner in Beijing was captured by a fan and again circulated around the Chinese internet.
Tesla enthusiasts regularly drive to the construction site outside Shanghai and fly drones over it, posting videos online documenting the pace of progress.
China's Premier Li Keqiang even reportedly offered Musk permanent residency when they met in January.
Chinese electric automakers are ready to take on Tesla
China is not just a land of opportunity for Mr Musk.It is also the place where Tesla is most likely to meet its match.
China boasts more than a dozen companies making hybrid or fully electric vehicles — from state-owned behemoths to huge private companies and smaller start-ups.
And it's the privately-owned BYD that arguably poses the largest competitive threat.
The Shenzhen-based company came close to matching Tesla's 245,000 deliveries last year, with the vast bulk of cars sold in China.
Another automaker, BAIC — owned by the Beijing government — produced the highest-selling model in the country: the compact EC-Series that sells for $35,000 before subsidies.
"The main reason I bought one is because a government subsidy halved the price and it's easier to get number plates for electric cars," said Beijing resident Kelvin Fung, who bought a BAIC in February.
He said a policy that allows electric car owners to drive seven days a week instead of being subjected to a six-day congestion restriction for petrol cars was another incentive.
"I personally think though that Chinese cars are not as good as overseas brands, but they're quite cheap," he said.
Reports of quality problems and dubious range claims have further reinforced views that despite the enthusiasm of both the Government and domestic car markers, China is still yet to produce a genuine rival to Tesla.
"Elon Musk can design special products that capture people's hearts, by contrast the electric cars designed in China are boring," said Jia Xinguang.
"Chinese electric cars are not as fun", he said.
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