Tesla has officially opened up its first factory in China this week as the company is hooked up to the state-run power grid before it begins its initial production, according to Bloomberg. The automobile manufacturer plans to produce as many as 1000 Tesla Model 3 cars per week at the factory, which has never before worked out of China. Tesla was officially added to the list of approved automobile factories this week, giving the company the OK to begin production anytime.
Until now, many Tesla cars were made in the Tesla factory in Fremont, California. But the arrival of the Tesla Model 3—the company’s most affordable car—saw an increase in production that the factory could not keep up with. Additionally, the new lower prices on Tesla cars resulted in an increase in sales but with a smaller profit. While the company was making record sales throughout the first two quarters of the year, its profits faltered, resulting in layoffs and changes to the production of the cars.
Tesla Model 3 Prompted Major Change As The Company Struggles To Turn A Profit
The Tesla Model 3, its first ever “affordable” model, offers a stripped down version of the popular all-electric vehicle for those interested in the benefits of a Tesla that can’t afford the high price tag that comes with the more expensive Model X or Model S. The Model 3, already one of its most successful endeavors, begins at around $30,000 and offers the all-electric and safety benefits of the Tesla, without added luxuries that are in the more expensive models.
Despite the massive influx of new customers, though, Tesla has yet to profit on the Model 3. The cars are expensive to produce—especially in America—and many are opting for the cheaper vehicle instead of the luxury models as it offers what they were looking for in a Tesla. To combat this, CEO Elon Musk has made several announcements to incentivize consumers to lean toward the more expensive cars—free charging, for one, would eventually even out the cost of the more expensive car. On the production end, manufacturing the vehicles in China would allow the company to cut major costs as a way of attempting to turn a profit.
Tesla’s Role In The Trade War
The factory, which just opened up in Shanghai, is powered by the government-run State Grid Corp of China, which will amp up the power supply as Tesla begins to manufacture more vehicles in the factory. Part of the decision to move to China came from higher tariffs put upon U.S. made cars, though the company will also get an apparent tax break as it becomes the first fully-foreign car manufacturing plant in China.
A move like this comes at an interesting time for Chinese-U.S. relations, as President Trump and Xi Jinping, the Chinese President, are working to come to an agreement on the longstanding trade war that has all but plagued consumer goods in recent months. Powerhouse companies like Apple, which assembles all but one of its products in China, singlehandedly stopped Trump from imposing a greater tariff on consumer goods imported from China that would have gone into effect in September—just before the new iPhone 11 hit the consumer market. Consumer goods will avoid a sudden rise in retail pricing until just before the holidays, when the apparent increase in tariff’s will come into fruition on December 15.
