Tesla Pushing Ahead for Gigafactory 3 In Shanghai amid Trade War Tensions

Despite trade tension between Washington and Beijing, Tesla is building its first Gigafactory outside of the U.S. in Shanghai, China.  The 210-acre facility represents the largest foreign investment in Shanghai to date and when completed, will have the capacity to manufacture 500,000 vehicles per year.

Tesla is one of several companies pouring billions of dollars into China in a bid to secure a portion of the world’s largest electric vehicle market. Chinese sales reached 1.2 million units in 2018, accounting for 56% of the global market. Only 24,000 of the units sold were from imports.

Imports into China are burdened with a 15% tariff and are not eligible for government EV subsidies that domestic vehicles receive.  To be competitive automakers who wish to participate in the Chinese market are forced to produce their cars in China and are required to partner with state-owned companies.

Elon Musk has avoided the need to partner with a domestic producer by building in the Shanghai “Free Trade Zone” Vehicles built in the free trade zone may still be subject to China’s 15% tariff. However, this decision allows Musk to build cars on the continent where they are sold without sharing Tesla technology with any potential competitors.

Production in Shanghai will also allow Tesla to work with local suppliers who can provide low-cost components for a more competitively priced product to offer the growing Chinese consumer class. By the year 2030, China's middle class is expected to reach 1.4 billion people.

The USA is a very distant second in the global EV market. Customers in the United States took delivery of 360,800 vehicles in 2018, representing about 30% of the total global volume. Of that number, 146,000 were Teslas. Despite all of the ramp-up issues and bad press which have hectored Musk and his company, by the end of 2018, Tesla was producing 1000 vehicles per week and had become the worlds best selling electric vehicle.    

So, what exactly, is a Gigafactory?

Elon Musk coined the word at a 2013 investors meeting. When discussing the company’s high production targets for the Model 3, he stated that “There is going to have to be some kind of a Giga factory built. Something that is comparable to all the lithium-ion production in the world all in one factory.”

True to his word Musk broke ground on Gigafactory 1 in 2014. The plant, located near Reno Nevada, began limited production in 2017. To date, the facility is only 30% complete but will eventually become the largest building in the world with 4.9 million square feet of manufacturing space.

The Nevada plant is a joint venture with Panasonic who produces the lithium-ion cells for Tesla in a separate section of the plant. These cells are then packed into a tray to form the 100 Kilowatt Hour battery, which is the power plant for the Tesla vehicle. Battery production at the plant is expected to reach 35-gigawatt hours per year by 2020.

Gigafactory 2, located in Buffalo New York, produces photovoltaic solar panels. Many of the solar panels produced in Buffalo will eventually find their way onto the roof at Gigafactory 1, which is expected to have the worlds largest solar array producing 70 megawatts of power when completed.

Musk stated at an innovation summit in 2018 that the Nevada facility currently employs 7000 workers and foresees that number growing to 20,000 in the future. The Buffalo plant has a workforce of 800 people.

Global Auto Recession?

All of this is happening amid a global light vehicle contraction. In 2019 automakers have shuttered plants, canceled shifts and laid off thousands of workers. The damage has not been limited to North America. Every corner of the globe has been affected with China being hit hardest.

Chinese passenger vehicle sales have seen a double-digit decline in the past year. Harsh new government restrictions, improved public transportation and deteriorating relations with the United States have all played a role in the malaise automakers now find themselves in.

In this harsh environment, electric vehicles are flourishing. Plug in vehicle sales have steadily increased over the last three years. Much of the growth has been in China; however, sales have been rising everywhere. In Norway 40% of new car sales are plug-ins. In Iceland, 17.5% of all new vehicles sold are electric. EV’s have become a global phenomenon.

Government incentive programs can explain part of the increasing popularity of EV’s, but there is more to the story than that. Cost of ownership and performance in electric vehicles have improved dramatically. Traditional gasoline powered automobiles are losing their competitive edge

Electric vehicles are not for everyone, but the Tesla 3 has some very nice benefits of ownership to go with its impressive specs. Not only does its range exceed 200 miles but it also provides instant torque for passing and lane changes, accelerates from 0 to 60 mph in 5.6 seconds and has a fuel efficiency equivalent to 126 MPG. There is no exhaust system, no transmission or oil pan to worry about and no more standing outside in the freezing rain pumping fuel into the damn thing.

Perhaps the Chinese are on to something!