Tesla is expected to break the limit of 25% tariffs on self-funded factories in China.

Tesla CEO Elon Musk insists on setting up a wholly-owned factory in the Chinese market. Profile picture

After Tesla entered China, there were many twists and turns, from the trademark registration to the construction of the factory. There was no policy limit for foreign-owned auto companies to set up factories in China alone, but they faced China, the world’s largest new energy vehicle market. Tesla CEO Elon Musk never gave up.

After numerous breakthroughs, it was reported recently that Tesla will establish a wholly-owned factory in Shanghai. The spokesperson of the Ministry of Commerce’s press spokesperson publicly stated that Tesla is currently communicating with relevant departments of the Shanghai Municipal Government. In addition, Dong Yang, executive vice president of the China Association of Automobile Manufacturers, also publicly stated that the shareholding ratio of new energy vehicles will be relaxed, and that new foreign energy auto companies will be allowed to establish wholly-owned companies in the free trade zone as early as next year.

Foreign investment in China to establish a factory entry threshold or reduce

Elon Musk already had plans to build a production plant in China. As early as January 2014, he told the Chinese media that Tesla would build a production plant in China to supply Chinese demand.

The delay in planning three years ago has not yet been completed. Tesla’s primary challenge is whether to establish joint ventures with local Chinese companies. According to the relevant Chinese policies, foreign auto companies need to establish joint ventures with local companies in China's land-based production, and China’s share ratio should not be less than 50%. Tesla’s strategic plan is to establish a wholly-owned factory in a globally necessary market. In addition to the existing super factory in the United States, Tesla plans to build a new factory in Europe and China.

In June of this year, foreign media reported that Tesla will build a factory in Shanghai and will form a joint venture with Shanghai Lingang (33.110, 0.70, 2.16%) [share review], and this news was subsequently denied by Shanghai Lingang. However, Tesla insisted that by the end of this year, Tesla’s plans to produce cars in China will be more clear.

From the passage of time to the fourth quarter, Tesla has reached a critical stage in landing in China. Last week, the US "Wall Street Journal" reported that Tesla has reached an agreement with the Chinese government in Shanghai to build production facilities in the Shanghai Free Trade Zone. At the same time, Tesla China also expressed to the media that in order to better serve the Chinese market, Tesla is discussing with the Shanghai municipal government the possibility of building factories in the region.

Although the Shanghai municipal government has stated prudently, it has not signed an agreement on Tesla’s establishment of a wholly-owned manufacturing facility in the Shanghai Free Trade Zone. However, the spokesman of the Ministry of Commerce confirmed at the peak that Tesla is currently actively communicating with the Shanghai Municipal Government. He said that with respect to investment in strategic emerging areas, he said that with a welcome attitude, market access will be greatly relaxed in accordance with the spirit of the Nineteenth Congress.

Sole proprietorship in the establishment of factories in the Free Trade Zone still has related taxes

Last week, Dong Yang, executive vice president of the China Association of Automobile Manufacturers, publicly stated that “the equity ratio of new energy vehicles will be relaxed, and new foreign energy auto companies will be allowed to establish wholly-owned companies in the free trade zone as early as next year.”

Tesla will become the first foreign-invested new energy automobile company to establish a wholly-owned company in the China Free Trade Zone.

It is understood that Tesla will still face a tariff of 25% as a price to avoid setting up a joint venture with foreign auto companies in China's relevant policies, and Tesla will set up factories in the Shanghai Free Trade Zone. Nonetheless, this is the first time that the Chinese government has allowed automakers to establish foreign-owned auto factories in China.

According to industry insiders' analysis, Tesla's establishment of a factory in the free trade zone is still a model of customs, tariffs and value-added tax are numerous, but there are many advantages in terms of costs, including transportation costs, parts procurement costs, and labor costs. Moreover, after Tesla builds factories in China, it will be able to understand the needs of the Chinese market more quickly and in a timely manner and to better serve Chinese consumers.

According to report, Tesla has recently launched a large-scale campus recruitment with a total number of nearly 500 employees. The Tesla recruitment direction is mainly for sales, after-sales, engineering and IT, geographical distribution in Beijing, Shanghai, Guangzhou, Shenzhen, and Hangzhou, Wuhan and other most first- and second-tier cities.

Although Tesla’s recruitment in this round does not have jobs related to the construction of factories or manufacturing, the industry believes that this is a signal that Tesla will further develop in China on a large scale, or prepare for Tesla’s domestic production.