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Tesla Motors Looks Towards China For Setting Up Its Manufacturing Plant

|Includes: Tesla, Inc. (TSLA)

Tesla Motors Looks Towards China For Setting Up Its Manufacturing Plant

The American EV maker is talking with Jinqiao Group to establish its production plant in the region.

Tesla Motors is set to sign a contract for its first production center in Shanghai, an individual aware of the issue stated. Jinqiao Group, which develops as well as operates residential and commercial properties, is close to signing a deal with the American electric vehicle maker to establish manufacturing facilities in the city, according to a source privy to the matter. Shanghai has proved to be the front-runner as its municipal government will probably offer a larger number of policy incentives, stated a source, without disclosing more information.

The electrically powered car maker has signed a non-binding memorandum of understanding (NASDAQ:MOU) with the Shanghai municipal government-owned organization on setting up its manufacturing facilities, as per the reports of Bloomberg made on Tuesday. Both the parties should invest $4.55 billion, in the tie-up, with Jinqiao Group giving land for majority of its share, Bloomberg cited an anonymous person's statement.

On Tuesday, the Jinqiao Group's Shanghai-listed division stated that its controlling shareholder hasn't signed an MOU with the Palo Alto, Calif. firm. Apart from Hefei, Suzhou and Shanghai are amongst the cities seeking actively to win over the investment from the automaker. The spokeswoman of Tesla turned down the request to comment by stating that the organization won't comment on speculation or rumor. Calls to the government-owned organization weren't answered. China has turned into the second-biggest market for the California based company after the United States.

In recent times, Tesla launched its first Model X SUV in China, extending the line-up which includes the mass-market electric car Model 3 and its flagship car Model S. China is the biggest market for the low-priced EV outside the US as far as pre-orders for the car are concerned. As its first EV model aiming at the masses, the vehicle is offered at a price of $35,000.

An analyst working at the local consultancy Automotive Foresight Zhang Yu stated the localization of production would let the car maker significantly cut down its prices. Presently, the Tesla Motors Company appeal is confined to rich Chinese people due to high prices. Although the Model 3 is dubbed as affordable, the price in the country is still costly for average consumers. The car will probably be offered at a retail price in the country for a lot more than it is offered in the US because of the tax levy, he also stated.

LMC Automotive's analyst in Shanghai John Zeng stated localizing manufacturing would help improve the competitiveness of the company in the country against trivals like Audi, Mercedes-Benz as well as BMW. He added the company will take 3 to 5 years for the automaker to begin its vehicle manufacturing in the country. Zheng stated it would prove to be better for the automaker to collaborate with a Chinese vehicle maker in running its manufacturing facility to get better technical support. Foreign based car makers trying to establish production plants in the country have to do so by venturing with local companies in which 50% can be owned by them.