Elon Musk just signed an agreement with the government in Shanghai to build a Tesla factory in China. Recent reports note the factory could be capable of building more than 500,000 vehicles each year. This would put the new facotry's production level on par with that of the company's main electric vehicle plant in Fremont, California.
The agreed-upon factory could be Tesla's other attempt at breaking into the world's largest electric vehicle market. And, as many financial analysts have noted, Musk doesn't have much of a choice. The US-China trade war forced the American automaker to raise its prices by 20 percent in a lucrative market. Tesla sales in the China market have also slowed considerably. During the first quarter, sales dropped 15 percent. After the tariffs were imposed, sales dropped 30 percent.
By building another factory in their second-largest market, Tesla could bypass the tariff war between the US and China. It's been an idea Musk has mentioned to investors since last year. Musk mentioned in an earnings call that a China factory would be the only way for Tesla to compete with the prices of China's local electric car makers. Musk also hinted that a factory based in China would be the location of most of the mysterious Model Y crossover SUV's production. Currently, Tesla predicts that demand could get as high as 1 million units each year.
Fulfilling demands has been a struggle for Tesla within the last year. The company's Model 3 unit seemed destined for what Musk called a "production hell," with the company having several product line suspensions in order to reevaluate manufacturing practices in the Fremont facility.
The China facility could give Tesla a fresh start in how it produces its vehicles, and an opportunity before building to create a more efficient system. Tesla shares are also showing some recovery after taking a dive last week. The dip came from Tesla releasing its delivery and production numbers for the second quarter of this year. Tesla ultimately hit its 5,000 Model 3 units/week goal, but that wasn't enough to completely assuage fears. The announcement of Gigafactory 3 being built in Shanghai seemed to be enough to stabilize the company's shares value.
Before he ventured to China, the CEO stopped by Thailand to deposit the miniature submarine he and a team of SpaceX and Boring Company engineers created to help rescue the remaining soccer team members and coach.
Reports started surfacing about Musk signing the Shanghai agreement less than a day after his Thailand trip. Musk is expected in Beijing on Wednesday. No word yet as to how the discussions in Beijing could turn out for the CEO and the company. However, if they find success in the Chinese market, the company could be on track to hitting a milestone of 1 million electric vehicles sold in a year.