Well that didn’t take long. Just a few weeks after China announced foreign companies will no longer need to partner with local Chinese companies in order to manufacture cars in the country, Tesla created Tesla Shanghai Co. Ltd, a wholly owned subsidiary of Tesla HK. There was no formal announcement by Tesla, which has declined to comment. Reuters was the first to pick up on the new business registration on China’s National Enterprise Credit Information Publicity System.
According to that filing, the new company will focus on electric cars, spare parts, batteries, and solar photovoltaic products. Sounds like Tesla. The company is registered in the Shanghai Free Trade Zone, reports CNET. Zhu Xiaotong, who is the head of Tesla’s Chinese operations, is listed as the new firm’s legal representative, with Tesla Motors HK Limited given as its only shareholder.
What will the new company do? Will it build an automobile factory? A battery factory? Both? “We don’t have anything new to add on this news for now,” a Tesla spokeswoman told CNET in an emailed statement, adding the company hopes to share more “in the coming months.” That said, CEO Elon Musk said on the recent shareholder conference call that all of Tesla’s factories going forward would produce both batteries and cars. He also indicated an announcement regarding the location of Tesla’s Chinese factory could be expected later in the year.
The secret sauce here is that the new Chinese policy applies first to manufacturers of electric cars. Tesla certainly qualifies on that score. Even though its Model S and Model X only account for 3% of the burgeoning electric car market in China — where they are subject to a 25% import duty — sales in China are the second largest profit center for Tesla according to Quartz. Avoiding that import tariff by building cars in China should give its sales a significant boost, especially with the Model 3 and Model Y on the way.
The next question will be whether China will permit Tesla to power its cars with batteries it makes itself (and with Panasonic) in the country or requires it to source batteries from a Chinese supplier like CATL, like Renault and Nissan will be doing. There are lots of details we don’t know and won’t know for some time. But as the Chinese proverb goes, “A journey of a 1000 miles begins with but a single step.” It appears Tesla’s Chinese odyssey has now officially begun.
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