Tesla makes massive bet on China with new 500,000-car Shanghai factory

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Tesla (NASDAQ:TSLA) shares tumbled below $300 in early trading Thursday, July 5, to bring their three-day loss to almost 17%, as several Wall Street firms remain skeptical about the quality of the carmaker's Model 3 cars and its ability to meet weekly production targets profitably. The automaker hopes to eventually build some 500,000 vehicles per year at its Shanghai plant.

Elon Musk is expected to visit Shanghai and Beijing this week at events with representatives of the Chinese government, Bloomberg reported earlier this week.

Tesla didn't respond to a request for comment on the price rises.

Tesla has had an eye on China for a while now, with talks to build a factory in Shanghai first heard about back in June 2017.

Tesla shares extended their advance before the start of regular trading to gain as much as 3.4 per cent.

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.

Construction will begin soon, after securing needed permits, and it will produce 500,000 electric vehicles a year for Chinese consumers in two to three years, the company said in a statement. But Tesla wanted to have full ownership of the future factory.

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Tesla said a year ago it was working with the Shanghai government to explore local manufacturing. In addition to avoiding China's import duties on US-made cars, a plant in China also will reduce shipping costs and potentially make sourcing components more economical. China until recently levied 25-percent tariffs on imported cars, and for decades automakers have been moving to build more vehicles in the markets where they are sold to neutralize currency shifts and trade policy reversals.

China presents a massive growth opportunity for Tesla and rivals such as BMW AG and Daimler AG, which are seeking to take advantage of a massive and fast-growing market for new-energy vehicles.

News of a preliminary agreement in China comes just days after Tesla barely reached a crucial production milestone at its Fremont, California, plant that produces the Model 3, reaching the 5,000-cars-per-week target just hours after the self-imposed deadline.

Analysts were divided on whether the price hikes will bother affluent buyers in China where, in big cities like Shanghai and Shenze, it is considered a status symbol to own a Tesla.

At the top of the range, the most expensive Model X crossover is now 1.57 million yuan ($240,000) up from about 1.32 million ($200,000) before.

Ramping up manufacturing is critical to the auto maker being able to sustain itself financially while pursuing Musk's mission to transition the world to battery-powered transportation. The timeline may have been accelerated by recent tarrifs, however, as well as Tesla's well-documented cash flow problems.