Where’s the money coming from, Elon?
American EV maker Tesla has signed a “cooperative agreement” with the Shanghai Municipal Government to build its third megafactory in China, according to an announcement made by the company. The aim is to have that factory be capable of an annual capacity of 500,000 cars a year, and will play a critical role in servicing what has emerged as the largest market for electric cars in the world.
“We expect construction to begin in the near future, after we get all the necessary approvals and permits. From there, it will take roughly two years until we start producing vehicles and then another 2-3 years before the factory is fully ramped up to produce around 500,000 vehicles per year for Chinese customers.” — Tesla Inc.
The Chinese Gigafactory will be the first facility of its kind outside of the US, and will be the third following the Gigafactories in Nevada and New York. With China settled, Musk’s next target for a Gigafactory will likely be Europe, though we’re doubtful that an announcement on this will come in the near future.
Tesla’s had intent to produce cars in China for some time, however talks on the matter died in 2017 after China insisted that Tesla would have to partner up with a local company in order to push the deal through. Beijing has since relaxed that rule. However, amid the announcement, Tesla has been forced to increase the prices of its cars thanks to a new 40% tariff that China is imposing on US-imported products, instigated by US President Trump’s ‘strategy’ to level its trade deficit.
An interesting nugget of information here is that Tesla says that it’ll be the sole owner of the Chinese Gigafactory, despite also supplying a press release from the Shanghai Municipal Government that said that it had signed an “electric vehicle Investment Agreement with the Lingang Management Committee, [and] Lingang Area Development Administration,” as well as the “Lingang Group” which describes themselves as a “state-owned enterprise” focused on industrial development investments.
That raises a question. The Chinese Gigafactory, which the company would like to begin construction on “in the near future,” will cost the company some US$4-billion to US$5-billion to get up and running. With just $2.7-billion in cash at the end of Q1 2018 and money burned getting the Model 3 production up to target, a question that remains unanswered is how it’ll all be financed. Could this be why Tesla was asking for US$2500 configuration fees for the Model 3 be paid up by its US & Canadian customers earlier this month?
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