Published: Mon, January 07, 2019
Markets | By Otis Pena

Tesla to break ground on Shanghai plant as trade war lingers

Tesla to break ground on Shanghai plant as trade war lingers

It marks a major bet by Tesla as it looks to bolster its presence in the world's biggest auto market where it faces rising competition from a swathe of domestic rivals and its sales have been hit by increased tariffs on USA imports.

Tesla Inc will break ground on its Shanghai Gigafactory on Monday, Chief Executive Elon Musk said in a tweet, formally starting construction of the US electric vehicle (EV) maker's first Chinese plant as its ramps up its presence in the market.

Concerns about the shrinking USA tax credit and Tesla's decision to cut prices by $2,000 to partially offset the lower incentive sent the carmaker's shares plunging 9.7% during the first two trading days of the year. The challenging environment also includes competition from several startups that all want to be like Tesla.

As Bloomberg first reported, Tesla investors want to subpoena musician Claire Elise Boucher, a.k.a. Grimes, the rapper Azealia Banks, and several news outlets due to their potential knowledge about Musk's August tweet in which he said, "Am considering taking Tesla private at $420". But despite what one might read in Elon Musk's Twitter feed, it's not yet the top dog. The deadline of reduced tariff would end on March 2nd, and after that, the tariff on United States made autos on China would revert back to 40 percent, instead current 15 percent.

A local Chinese plant may be crucial for Tesla, which is struggling to stave off a potential dip in demand in the USA, its biggest market, after reductions in federal tax credits for EVs.

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Separately, Tesla confirmed in its third quarter financial report in October 2018 that it would bring "portions of Model 3 production" to China, now the world's largest vehicle market. In November, it clocked 393. Apple triggered global equity losses last week when it said slackening Chinese demand spurred it to cut its revenue outlook for the first time in nearly two decades. A key China PMI index fell below 50 in December to its lowest reading since May 2017, signaling weakening demand in the US$12.2-trillion economy.

The facility is expected to churn out about 250,000 vehicles annually at first - the Model 3 and the planned Model Y - and that capacity will double over time.

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-With assistance from Dana Hull.

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