Tesla Motors Sees Shanghai as Ideal Place For China Production

Tesla Fremont Factory

As Tesla Motors Inc (NASDAQ:TSLA) looks at ways to expand their production, they have earmarked Shanghai as one of the hotspots they will put their production base. The investment might be valued at $9 billion if Tesla decides to push with the Chinese city.

It is believed that Jinqiao Group, a Shanghai-based company which is government owned has signed a nonbinding memorandum of understanding with Tesla. The contract will allow Tesla to build production facilities in the city, a person close to the matter confirmed. The person refused to be identified due to the private nature of the negotiations at the moment. As per the contract, each party will invest around $30 billion yuan, about $4.5 billion, and Jinqiao will put up land as most of its share, the person said.

Other cities have also been actively working to partner with Tesla. Suzhou and Hefei have all been pushing for Tesla investment, the source said. The deal will surpass that of Walt Disney’s theme park which is valued at $5.5 billion which saw the opening of the Shanghai theme park last month. The theme park opened to much fanfare with fireworks and was widely supported by the Chinese President, Mr. Xi Jinping and his American counterpart, President Barack Obama.

Steve Man, an auto analyst at Bloomberg Intelligence, said that the deal was a major win for both parties involved. He believes the deal will also include superchargers, R&D center, a nationwide dealership network, and also a second Gigafactory.

The move to push manufacturing to China would allow the California-based company to avoid a 25 percent import levy. This pushes their vehicles to a competitive field with those of the luxury car makers such as BMW, and Audi. Shanghai has been acting as a hub for major auto manufacturing companies, on top of its role as a financial center and seaport. It is home to SAIC Motor Group which has deals with the American owned General Motors Co and Volkswagen AG.

Any foreign company that wants to set up manufacturing plants in China have to enter deals with local companies in which they get 50 percent stakes. In such cases, different provinces and cities continually fight to get the contracts and investment deals as they are incentives and ways to create jobs and financial growth for the various cities. As such there has been deals including that of Ford Motor Co. with the Changan Group in the city of Chongqing, which is in the southwestern province. Hyundai is also in partnership with a Beijing group called BAIC Group. Nissan also has a partnership with a group that is based in Wuhan, in the central province of Hubei.

A Tesla spokeswoman said that the company was not going to comment on the rumors and speculation. All parties involved in the deal refused to comment.