Chinese media have visited for the first time the location of Tesla’s third Gigafactory in Shanghai’s Lingang New City. Pear Video produced a video tour of the area.
The visit to Tesla’s formal address in Shanghai’s Lingang New City — also known as Nanhui New City — revealed an area that is already the home to robust manufacturing capacity, including a factory for China’s SAIC Motor company, which ranked 36th on the 2018 Forbes 500 list. The masterplanned city has been under development for the last 15 years, with specific zones carved out for manufacturing, the city center, a logistics area, and an equipment manufacturing zone, among others. It’s clear that China has big plans for the upcoming area and landing Tesla’s Gigafactory is sure to help fortify the region.
The Shanghai Gigafactory will represent the next evolution of Tesla’s manufacturing strategy, including its plan to build its vehicles — from the raw materials up — in a single location. That generally means battery cell and battery pack production as well as full automotive manufacturing lines, but Tesla has so far been coy about battery cell production in China. Tesla believes this integrated, large-factory approach will be a key in continuing to drive down the cost of its vehicles.
The move into Shanghai has been in the works for more than a year and the timing could not have been better, as the location of the factory was being finalized as the Trump maladministration was finalizing its plans to kick off a global trade war, starting with China. The new tariffs hit Tesla and other importers with a 40% tariff on a select set of imported goods that forced Tesla to raise the price of its vehicles in the country accordingly.
The new factory in the Shanghai Lingang Free Trade zone would not completely eliminate import tariffs for Tesla, as it would still have to pay a 25% tariff on components imported into the country. Tesla would likely be importing many of the components initially but expressed an interest in building as much of its Chinese vehicles as possible in the new location, using locally supplied components to reduce shipping costs and to reduce the emissions required to build its vehicles.
If Tesla is able to enact this strategy in full in its new Shanghai Gigafactory, it has the potential to not only save a ton of cash on vehicle production, but the automaker might also be able to build a far cheaper Tesla than any produced to date. Could the $25,000 Tesla Elon Musk mentioned to MKBHD be something it produces first at its Chinese Gigafactory? We all know there’s no more room to do so at its current factory in Fremont, California.
Construction in Shanghai’s Lingang New City was started in 2003, where the existing farmland was fortified with new territory reclaimed from the sea. In fact, 45% of Nanhui’s 133 square kilometers is on land that just a few years back was underwater. Just 60 kilometers from Shanghai proper, the city was to be a showcase of modern China. Housing for hundreds of thousands has been constructed around the masterplanned city, in anticipation of a booming metropolis by the sea in the years to come.
A 2014 video documentary of the area shows a ghost town of a city that could just as easily be a bustling city just vacated or the bones of a city being assembled in anticipation of the arrival of imminent tenants. The video highlights China’s ambition to modernize its population and notes that, while much of the city was vacant at the time, most of the downtown properties were already sold and construction was proceeding on new structures across the city.
Progress on the construction and population of the city has ramped up in the intervening years, with what was a vacant ghost town in 2013 turning into a fledgling metropolis in 2015. Reports indicate that it was by no means a fully functioning city, but that China had started pulling levers to force the growth of the city with the construction of 8 new universities that brought in nearly 100,000 students. This and other levers help to create demand for additional services that creates a virtuous circle of growth for the new city.
Tesla will enter the city to find it a city filled with new energy and plenty of governmental support. It will need that support as it seeks out local funding for the factory, where it plans to build 500,000 vehicles per year, with the first vehicles rolling off the lines in 2020.
China moves quickly. Maybe even as quickly as Tesla. Time will tell how this relationship pans out, but the wheels have already been set in motion for the next major step in Tesla’s Master Plan.
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