Tesla to build wholly owned China factory in landmark deal
Tesla is to build a wholly owned factory in Shanghai's free-trade zone, marking a landmark deal in a nation where overseas automakers are normally required to work with a local partner. While this will allow for lower production costs, the US company is also likely to face a hefty 25% import tariff. China has recently shifted policy to encourage development of its electric vehicle market as it looks to phase out fossil fuels to reduce its carbon emissions.
Tesla has made an arrangement with Shanghai’s government to built a manufacturing plant in the city’s free-trade zone, according to The Wall Street Journal, which cites reports from people briefed on the company’s plans.

The WSJ reports that Tesla will own the factory, rather than partner with a local manufacturer, as it typically the case. Chinese officials have recently begun to consider relaxing some of the more stringent rules concerning local partners, as a way to encourage electric vehicle manufacturers. The arrangement would be the “first of its kind for a foreign auto maker,” but will likely not allow Tesla to avoid a 25 percent import tariff.

In June, Tesla confirmed that it was in talks to build a factory in Shanghai, ending months of speculation about the company’s plans. At the time, a spokesperson explained that while the company anticipated keeping most of its production in the US, it did “need to establish local factories to ensure affordability for the markets they serve.”

The world’s largest market for automobiles, China has recently worked to encourage the development of a robust market for EVs. In September, Xin Guobin, the country’s vice minister of industry and information technology, noted at a forum that the country is beginning to phase out sales of fossil fuel vehicles as it works to cut its carbon emissions, and that existing manufacturers will need to begin building more EVs in the coming years. As such, establishing a factory in China will be a major deal for Tesla as it works to ramp up its production around the world.