Tesla Begins Taking Orders on Its Cheaper China-Built Model 3s

Date : 05/31/2019 @ 11:45AM
Source : Dow Jones News
Stock : Tesla, Inc. (TSLA)
Quote : 254.86  2.48 (0.98%) @ 1:00AM

Tesla Begins Taking Orders on Its Cheaper China-Built Model 3s

Tesla, Inc. (NASDAQ:TSLA)
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By Trefor Moss 

SHANGHAI-- Tesla Inc. promised to start delivering Model 3 sedans built at its new Shanghai plant within six to 10 months--and priced them well below U.S. imports--as the electric-vehicle maker races to capitalize on booming Chinese demand.

Offering up details on its China strategy, Tesla said prices for the locally built Model 3 will start from about $47,500 for the Standard Range Plus version. That is a significant discount on the $58,900 Chinese buyers currently pay for a basic Model 3 imported from the U.S.

The company is starting to take orders for the local Model 3, and the first Shanghai-built cars are scheduled for delivery late this year or early next year, the company said in a post on its social media account.

Getting China right, said industry analysts, is pivotal for Tesla, whose share price has halved in the past six months amid doubts about its ability to ramp up deliveries in the U.S.

"Tesla has struggled with the Model 3 launch," said Bill Russo, founder of Shanghai-based consulting firm Automobility. "A repeat of this in China would put their timing at risk and place further stress on their cash flow."

Tesla broke ground on its Shanghai factory in January. The buildings' exteriors appear to be nearing completion, judging by recent images posted on Twitter by local Tesla enthusiasts who have been monitoring activity at the site. At a launch ceremony at the start of the year, Tesla Chief Executive Elon Musk said the plant could start production this year and reach volume in 2020. Friday's announced delivery dates for the Model 3 suggests the company is on track to meet that timetable.

Sticking to that schedule would enable Tesla to tap into lucrative subsidies for electric vehicles before the government cancels them by the end of next year. Under the existing program, a Model 3 manufactured in China would qualify for a subsidy of about $3,600, potentially allowing Tesla to lower its sticker prices.

While the overall Chinese auto industry is experiencing a slump, with sales falling last year for the first time since 1990, sales of EVs are surging, and the premium segment in which Tesla operates is also growing. That gives Tesla, which already enjoys significant brand cachet in China, a good chance of transforming itself from the niche player it is today.

"Tesla is coming into a good segment with a brand that is rooted as a leader in the EV sector," said Mr. Russo, who said Tesla was right to commit fully to China.

In gearing up for local production, Tesla has started a full-throttled recruitment drive. Organizers said an event on Wednesday, in eastern Shanghai close to the new factory, drew 4,000 applicants. One applicant was a former assembly-line worker for General Motors Co. in Shanghai who voiced confidence in Tesla's prospects. "I hope to retire at Tesla," said 28-year-old Zhang Cong.

Tesla ultimately plans to build 500,000 vehicles a year at the Shanghai facility--a massive step up from the 16,360 imported vehicles it sold in China last year, according to auto-intelligence firm LMC Automotive.

Trade tensions between Washington and Beijing were factored into Tesla's China plans. Beijing dropped a longstanding requirement that foreign car makers form joint ventures with Chinese partners, a policy that had been criticized by the U.S. But Beijing also raised tariffs on imported cars from the U.S. in retaliation for levies imposed on Chinese goods by Washington.

The new ownership rules and the higher tariffs gave Tesla reason to accelerate plans for a China factory. But the higher tariffs also brought it troubles. After raising prices to reflect the new tariffs, it later slashed them, drawing a backlash from recent buyers who weren't offered refunds.

Operating alone means Tesla can retain all the profits from its local operation, rather than sharing them with a joint-venture partner, though it must also shoulder all the political and financial risks associated with the project.

Chunying Zhang in Shanghai contributed to this article

Write to Trefor Moss at Trefor.Moss@wsj.com

 

(END) Dow Jones Newswires

May 31, 2019 06:30 ET (10:30 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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