Tesla China is mulling local factory

Electric carmaker says it is in talks with Shanghai, but no clarity yet on deal

Elon Musk’s Tesla Inc-the highest valued car producer in the United States with a market capitalization of over $60 billion-never fails to surprise people, and this time it is the electric carmaker’s localization plans for China.

A Tesla China senior spokeswoman said late Thursday night that events were moving into high gear.

“We expect to more clearly define our plans for production in China by the end of the year,” she said.

Before that, Tesla had been silent for days about media reports that it would sign a deal on Thursday to build a plant in Shanghai’s Lingang development zone.

Tesla China’s senior public relations manager Duan Zhengzheng said the company was working with the Shanghai municipal government to explore the possibility of establishing a manufacturing facility, but did not comment on whether a deal had been signed.

Tesla’s comments came after Shanghai Lingang Holdings Co Ltd, in the wake of a surge in its share price over the last few days, denied any negotiations of a possible partnership with the US electric carmaker after the stock market closed on Thursday.

Shanghai Electric Group Co Ltd, another rumored partner, also denied negotiations over a possible partnership with Tesla on Friday. Lingang’s shares plummeted to their daily limit on Friday and Shanghai Electric shares halted trading.

The 21st Century Business Herald newspaper reported on Thursday, without providing details, that Tesla has been in talks with the Shanghai authorities for two years, but Tesla has been demanding too much.

John Zeng, managing director of LMC Automotive Consulting Shanghai, said the extended talks might have something to do with Tesla’s intentions to partner with a non-auto company to protect its car-building technologies.

If Tesla wants to produce cars in China, it would need to set up a joint venture with at least one local partner, under existing rules.

Yale Zhang, managing director of Automotive Foresight, said the government may not give its approval if Tesla insists on a joint venture with a partner that is not a carmaker.

“Electric cars are not rocket science and there is no need for the government to make an exception,” he said.

Zeng said Tesla may win approval with the help of local authorities, but added there was no need for them to give too much away in the negotiations.

“The fact is that Tesla needs China, not China needs Tesla,” Zeng added.

Tesla sold 10,399 cars in China in 2016, up 181.7 percent year-on-year, LMC statistics show.

Zheng said, however, that BMW Brilliance’s Zinoro and Daimler and BYD’s Denza were not inferior to Tesla models in terms of quality and driving ranges.

He said localized Tesla models would not have a big impact on China’s new energy vehicle sector.

LMC statistics show that 95 percent of new energy cars sold in China are priced under 100,000 yuan ($14,624), while a Tesla S sedan is priced at more than 700,000 yuan.