Complex Made Simple

China welcomes Tesla to the world’s largest electric vehicle market

Tesla now has the greenlight to officially begin production of its vehicles on Chinese soil, opening up great horizons for the company.

While Tesla already exports to China, and is highly popular there, it has never been able to produce its units there Tesla had been anticipating this legislation, already in the midst of building a production facility in Shanghai Tesla cars produced in China will be exempt from the tarrifs imposed on US-imported vehicles

While Tesla has been the name front lining the electric vehicle (EV) movement in the US, plenty of Chinese automakers have been pushing out their own eco-friendly vehicles to the world’s largest EV market, with 1.2 million vehicles sold in 2018.

While Tesla already exports to China, and is highly popular there, it has never been able to produce its units on Chinese soil. In fact, all of Tesla’s car production facilities are located in the US. 

This, however, is about to change. 

China opens the door to Tesla’s factories

Last week, Reuters revealed that Tesla was added to a government list of approved automotive manufacturers, granting it the certificate it needs to start production in the country. This is especially important given the ongoing US-China trade war. With Tesla selling vehicles to the Chinese market that have been produced locally, they are able to circumvent trade war-imposed tariffs that would apply to any imported US cars.

Tesla had been anticipating this legislation, as it had already been building a $2 billion factory in the eastern Chinese city of Shanghai, Reuters explains. This would be its first car manufacturing site overseas. 

At the same time, Tesla’s facility would be the first fully foreign-owned car plant in China, Reuters noted, without the existence of a local partner. This reflects Beijing’s broader shift to open up its car market.

But this isn’t the extent of the good news for Tesla in China. Last month, CNN reported that the US manufacturer had won an exemption from a 10% purchase tax in August, which will reduce the price that customers will have to pay for a Model 3, Model S or Model X.

The world’s largest EV market
While China’s EV sector might be enjoying the advantage of the world’s largest population, it is important to note that there had been a lot of active support by the government to push the EV initiative. 

“The Chinese government has spent nearly $60 billion in the last decade to create an industry that builds electric cars,” Quartz writes. “No other country in the world has made anywhere near as big an investment or instituted as significant regulations.”

Quartz continues be explaining that China now has more than 100 electric-car makers, along with hundreds of additional companies that supply components for electric cars. Given that the battery is often the most expensive component of an electric vehicle, China has done its homework and covered its bases. 

According to Yano Research Institute, China currently controls between 50% and 77% of the global market for the raw materials needed to manufacture battery components. 

Other big names in the Chinese EV market
Many have vied for the unofficial title of the ‘Tesla of China.’

You have some regionally (Middle East) familiar names like BYD and BAIC, but also some not too known, like Zhidou and startup Nio.

These car manufacturers have been suffering, however. 2019 saw a strong start to the year, but the eventual subsidy cuts to the sector led to mounting pressure on manufacturers. Couple this with the ongoing trade war, and one can see what’s causing this decline. 

Graph: Atlas

“BYD, the world’s biggest EV manufacturer and a bellwether for sales in China, reported its second monthly sales declines [in September]—it saw sales in August drop 23% from a year ago in the same period,” Quartz reported

With Tesla’s official entry into the market as a local producer, as well as the brand’s popularity in China, EV sales could see an uptick in the coming year.