Tesla Inc $TSLA seems to have started a tender to build its Shanghai Gigafactory and at least one contractor has started getting materials, according to sources and documents reviewed by Reuters, the most reliable indication that construction is imminent.
The information reveals that Shanghai Construction Group Co Ltd participates in the bidding while a unit of China Minmetals Corp Ltd is preparing materials for the plant’s foundations
The company’s critics were skeptical, to say the least when Elon Musk announced the target timeline for the new factory earlier this year. Musk stated that vehicle production in the new Gigafactory 3 would start roughly two years after the construction begins, with an output of 500,000 vehicles per year 2-3 years after. The timeline, which could only be described as classic Elon Musk, faced many doubts from Wall Street. James Albertine, a senior auto analyst from Consumer Edge Research, dubbed Gigafactory 3’s timeline as simply “not feasible.”
Tesla Inc. is planning on starting production in China in the second half of next year, as the U.S. electric-car maker makes progress with its push in the world’s largest auto market.
Tesla has claimed about 200 acres of land for the China factory, which might cost several billion dollars to build. Tesla’s first factory outside of US will help the electric-car maker avoid some of the risks involved with importing automobiles, for instance, new tariffs caused by the trade war between China and the U.S.
Higher tariffs brought Tesla a pricing weakness against local car producers such as BYD Co. Also, there are a lot of new Chinese entrants including NIO Inc. and Xpeng Motors, which are also trying to earn customers’ attention before Tesla starts its full-scale push in the country.
At the same time, the Chinese car market is headed for its first drop in at least two decades as economic headwinds, the trade war with the U.S. and slumping stock prices weigh on consumers’ appetite to buy new vehicles.
China is Tesla’s biggest market after the U.S., thus volumes in the country have been limited because the company has had to rely on imports. The company reported during their Q3 that 40 percent duty that China levies on cars brought from the U.S. has had an influence on sales. The company has also started to look for employees for the new facility.
Shanghai authorities are helping Tesla obtain loans from some of the biggest Chinese banks to fund the new plant, people familiar with the matter said in August. Tesla may borrow about $1.3 billion locally for the facility, RBC Capital Markets analyst Joe Spak said last month.