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Tesla Plans to Build Cars in China in the Next Four Years

April 22, 2014

Tesla Motors Inc. will not only start deliveries of the Model S electric car in China. According to Chief Executive Officer Elon Musk, he also expects the company he co-founded to begin making cars in the country in the next couple of years.

In addition to building cars, the Palo Alto, California-based automaker is also building a huge network of battery-charging stations across the country. Musk announced at the Geekpark Conference that Tesla plans to build superchargers in Beijing and Shanghai.

“At some point in the next three or four years we’ll be establishing local manufacturing in China,” Musk confirmed. “China is very important to the future of Tesla. We’re going to make a big investment in China in terms of charging infrastructure.”

Musk is in Beijing this week to host an event that will mark the start of Tesla’s deliveries to the world’s largest auto market. The electric car manufacturer has been taking orders of its Model S car since August and has opened an 8,600 square feet retail establishment in a Beijing shopping mall last year to introduce its products to Chinese motorists.

If Tesla proceeds with the manufacture of its electric vehicles in China, the carmaker and Chinese customers alike will benefit. Local production will enable Tesla to sell their products at lower prices, since the company is spared payment of the country’s 25 percent import tariff. Tesla can then pass on the savings to those who will buy their cars.

The starting price of the Model S with an 85 kilowatt-hour battery in the United States is $71,000 prior to federal tax credits. The starting price of the car in China is 734,000 yuan (or $118,000). The price is higher because it is inclusive of shipping charges, value added taxes, as well as import duties. Tesla can do away with these additional costs if its vehicle qualifies for China’s electric car subsidies.

While Tesla may have no problem selling its cars in China, it faces a challenge the Chinese government itself has yet to overcome—encouraging the public to actually buy the cars.

China seeks to have 5 million alternative energy-powered vehicles on its roads by 2020, as the country deals with worsening air pollution. However, China is far from its target. The high costs of electric vehicles and the lack of charging stations contribute to the reluctance of consumers to purchase more environment-friendly rides.

According to the Beijing municipal government, there have been over 90 bids for each available permit for gasoline vehicles in the February drawing of the city’s license plate lotteries. On the contrary, despite having 1,666 new-energy vehicle plate offerings, applications only totaled 1,428.

Tesla will push through with its entry into China despite losing its general manager for operations in the country just last month. Kingston Chang, who previously worked for Volkswagen AG’s Bentley, left the company for personal reasons.

Tesla is but one of the automakers in Beijing right now; many others are also in the city to showcase their latest vehicles for the annual auto show. The Beijing Auto Show opens to the public this week.

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