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A new report throws another factor into the Tesla factory in China mix. If Tesla builds cars there, must it equip them with batteries made in China, too?


China: Should Tesla Stay Or Go?

A new report throws another factor into the Tesla factory in China mix. If Tesla builds cars there, must it equip them with batteries made in China, too?

We did a story yesterday about Tesla and its stalled talks with the city of Shanghai. Tesla has been saying for months that it wants to build a factory in the curious animal known as the Shanghai Free Trade Zone. Products manufactured there must still pay Chinese import duties, which add 25% to the price of an automobile, but Tesla clearly was under the impression that it would avoid the need to partner with a Chinese company if it built its cars there.

tesla china

That seems not to be the case. Although neither Tesla nor Shanghai wants to say anything on the record, the talks have stalled and the sticking point seems to be that the Chinese government is insisting Tesla buddy up with a Chinese partner if it wants to build cars anywhere in China. Yesterday’s story got a lot of comments, with some folks saying Tesla should just suck it up and build its Chinese factory sooner rather than later.

Others were of the opinion that Tesla should refuse to knuckle under to Chinese pressure. If its cars are going to be charged the 25% import duty anyway, why not build a factory in an Asian country that has a stable economy and ship them to China from there? Vietnam has been mentioned as a possible manufacturing site. Older Americans may find a fine irony in that suggestion. India is also another country that would be only too happy to have a Tesla factory. India is also a good candidate.

Today, some people at Seeking Alpha have thrown another consideration into the mix. (Yes, we know many of our readers have hostile feelings for Seeking Alpha, but even a broken clock is right twice a day.) SA contributor Robert Castellano points out that the generous EV incentives China now has in place — they slash the cost of a Hyundai Uiedung by nearly 50%, for example — are only available for electric vehicles manufactured in China that have batteries manufactured in China.

Last year, Kia and Hyundai were denied permission to sell cars in China with batteries manufactured by LG Chem. They have now switched to using batteries made by Chinese battery company CATL. Tesla uses cells manufactured by Panasonic for its electric vehicles. That puts another stumbling block in Tesla’s path to building cars in China. If it does, it will have to equip them with batteries made in China as well, apparently.

CATL is close to being the only game in town for EV batteries, according to this Seeking Alpha contributor. It already has the ability to manufacture 17.5 GWh worth of batteries a year and intends to build another factory that will add 24 GWh more capacity. A report by Bloomberg says, “In China, the source of 99% of CATL’s business, the company’s lithium ion batteries will be inside locally made EVs from Volkswagen, BMW, and Hyundai. Toyota, Honda, and Nissan are considering CATL batteries for planned China-made vehicles. Domestic companies using the batteries include BAIC — the biggest EV seller in China — and Zhengzhou Yutong, the world’s biggest bus maker.”

As mentioned, nobody is saying anything officially about Tesla and its Chinese manufacturing plans, but an inference could be drawn that the locally made battery piece of the puzzle could be a significant factor in the ongoing negotiations. Tesla could well have serious qualms about sharing its battery chemistry secrets with a foreign partner. And what about Panasonic? You can’t really separate Tesla and Panasonic these days when it comes to EV batteries. If anyone from Tesla wants to contact either me or Zachary, we would welcome any input from the company.

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Steve writes about the interface between technology and sustainability from his homes in Florida and Connecticut or anywhere else the Singularity may lead him. You can follow him on Twitter but not on any social media platforms run by evil overlords like Facebook.


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