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Ready or not, the “WOFE” is coming for car manufacturing in China

Get ready for a new era where foreign carmakers can build wholly-owned manufacturing plants in China without having to form a joint venture with a Chinese manufacturing partner, as required by the existing Automotive Industry Development Policy (AIDP).

There is a catch, of course.

With Ministry of Commerce (MOFCOM) Spokesman Gao Feng’s confirmation at a regular press conference on October 26 that Tesla is indeed in discussions with the Shanghai municipal government about building a plant in the city, and China Association of Automobile Manufacturers (CAAM) Executive Vice President Dong Yang’s comments a day earlier at an industry conference that the State Council has made a decision to allow foreign companies to build wholly-owned electric vehicle manufacturing operations inside China’s Pilot Free Trade Zones starting next year, we can start our countdown to the day when China lifts the requirement that foreign carmakers must set up JVs in order to manufacture cars in China.

The catch is that they do it only inside the Pilot FTZs, produce only battery electric vehicles and still be subject to a 25 percent tariff normally levied on imported cars.

These developments come a few days after a Wall Street Journal article reported that Tesla had reached a deal with the Shanghai government to build a wholly-owned facility in the city’s FTZ, which both partners later denied. On October 24, Fu Yuwu, director general of SAE China, said at the 2017 SAE China Convention that the 50:50 JV equity requirement will be eventually lifted.

With the upcoming state visit by U.S. President Donald Trump in November and Tesla’s recent moves to offer Chinese standard charging sockets on all its vehicles and the opening of its largest supercharging station worldwide in Shanghai, all signs are pointing to Tesla becoming the first foreign carmaker to set up a wholly-owned foreign enterprise (WOFE) in China.

The reasons why Tesla could become the first foreign carmaker to get the special treatment are simple: it is an unorthodox carmaking startup that has been able to challenge the traditional incumbents in the industry and convince early adopters that EVs are not as lame as they are perceived to be when it comes to charging, range and driving performance. The fact that China’s top government officials have repeatedly said that the country is working to formulate policy measures that reduce restrictions on foreign investment in the new energy vehicle industry to further open it up, why not throw in Tesla as the “catfish” in the pool of sardines as a “test subject?” It could also be the perfect “gift” for Trump when he visits.

Look for an official announcement by the end of the year if not November. The “WOFE” is coming for car (specifically EVs for now) manufacturing in China and the outright abolition of the 50:50 JV equity rule on vehicle manufacturing won’t be far behind.

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