— This is the script of CNBC's news report for China's CCTV on July 11, 2018, Wednesday.
The news that the Tesla Super Factory will be settled in Shanghai has given the market confidence in the company's long-term capacity increase and sales promotion. This factory will become a wholly-owned Tesla super workshop integrating R&D, manufacturing and sales functions. The current plan is to produce 500,000 pure electric vehicles per year, which is the largest foreign-invested manufacturing project in Shanghai's history.
Tesla issued a statement saying that the construction of the factory will take about two years before produce autos, and it will take another two to three years to reach the capacity of 500,000 vehicles per year. Tesla is deeply invested in the Chinese market and is looking forward to producing more cars for its customers here. Although Tesla's news of building a factory in China had been rumored in the market before, the final implementation of the overnight news has boosted the market's prospects for Tesla.
After the news of Tesla signed an investment agreement with Shanghai Lingang released, Tesla's share price rose to 2.4% before the opening session in US stock market, and it opened nearly 2% on the day, rising nearly 3%. Later, although the US stock market volatility narrowed the gains, Tesla still closed 1.24% higher at the close, outperforming the market.
There is no doubt that more efficient connection with the Chinese market will benefit Tesla. We know that Tesla has always relied heavily on China, the world's largest auto market. In 2017, the Chinese market accounted for approximately 17% of Tesla's total revenue, and Tesla annual sales in China were around 15,000.
Some analysts believe that the potential of the Chinese market is huge, consumers have strong purchasing power and Tesla's establishment in China can shorten the cycle and cost from manufacturing to sales, that is one of the best choices for Tesla. However, it should be mentioned that the establishment of a wholly-owned factory in the Free Trade Zone, rather than a joint venture, means that Tesla’s cars produced in China cannot get import tariff reduction.
But if we look at the formula for calculating the price of Tesla models in China, we will find that the price in China is equal to: the US price multiplied by the exchange rate, plus transportation and handling charges, plus tariffs and other tax rates, and finally VAT. Therefore, the reduction in freight and handling charges, the potential reduction of 10% purchase tax, and the reduction of exchange rate risk, the optimization of supply chain costs and labor costs, and the promotion of China’s new energy policy will benefit Tesla’s "Chinese-made" sales model in overall.
But Tesla is not without challenges. At present, the biggest question for investors, whether long or short, is how Tesla wants to pay for the investment in building factories in China. They must get financial support. At the current speed of burning money, Musk must now ensure that the company has sufficient capital flows.