With reports of rising breakdowns and poor quality issues threatening to blunt investor enthusiasm for Tesla’s stock after CEO Elon Musk managed to meet his latest “factory-gated” Model 3 production deadline (at least on paper), Tesla shares have resumed their ascent this morning after a report sourced to “people familiar with the matter”, according to which Tesla is planning to build a factory in Shanghai with a capacity for 500,000 vehicles a year.
According to Bloomberg, Tesla is expected to sign a memorandum of understanding with local authorities regarding building the factory. While investors responded enthusiastically to the news, the fact remains that the Wall Street Journal published a nearly identical story roughly a year ago while Engadget covered Musk’s China ambitions all the way back in 2015, a tradition as Musk has waved the China strawman flag any time he needs a Hail Mary to push the stock price higher (like now). Back then, Tesla and Chinese officials denied that there were any concrete plans for a Tesla factory in Shanghai, but Tesla later revealed that it was working with local officials to explore “opportunities in manufacturing.”
Musk was expected to be in Shanghai for an event with government officials on Tuesday.
Much has changed since WSJ published its false-alarm report last year: China has taken steps to liberalize its auto industry by making it easier for foreign companies like Tesla to establish a foothold in the Chinese market. And China’s retaliatory tariffs on US automobiles and auto parts recently forced Tesla to hike the prices of its Tesla Model S and Model X sedans by roughly 20%, ratcheting up the incentive to manufacture locally.
Also, unlike last time, the local government’s “encouragement” of foreign investment in advanced manufacturing in the region may actually mean Tesla pulls it off this time. By luring Tesla on to the mainland, China is hoping to steal some of the manufacturing jobs that President Trump covets, away from the US. Meanwhile, in exchange for allowing Musk to build cars on the ground, bypassing tariffs, Beijing will promptly seek to “expropriate” Tesla’s technology.
Tesla shares climbed 2.7% in the pre-market on the news, rising to $327 in recent trade, if still well below last week’s transitory highs.
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Author: Tyler Durden