UPDATE: Tesla said in a securities filing on March 7 that it had signed an agreement with lenders in China for a 12-month facility of up to ¥3.5 billion ($521 million) for the $2 billion Shanghai Gigafactory, which, according to Chen Mingbo, director of Shanghai Municipal Commission of Economy and Informatization, will complete construction of general assembly shop by May and begin production by yearend, as previously planned. It reduced prices of its Model S, X and 3 in China on March 1 by as much as ¥340,000, angering customers who purchased those vehicles days before. Local Model 3 deliveries began on February 22.
PALO ALTO, California – A year after revenues nearly doubled to more than $2 billion in China in 2017, Tesla’s revenues in its crucial market where it is building a Gigafactory to produce the Model 3 fell by more than 13 percent in 2018, according to data from its 2018 annual report released on February 19.
Revenues (including its energy generation and storage segment) reached nearly $1.76 billion in China last year, down from the $2.03 billion achieved in 2017, which was a 90 percent increase from 2016. The drop in revenues was primarily caused by lower sales volume due to the U.S.-China trade spat, which raised tariffs of U.S.-made vehicles from 15 percent to 40 percent. The tariffs have gone back to 15 percent since January 1, valid for three months. Whether it will remain there or go back up is pending on on-going trade negotiations between the two countries.
Tesla, which is preparing to deliver the imported Model 3 to Chinese customers in March and began construction of its wholly-owned Gigafactory in Shanghai in January for the local production of “affordable” trims of the Model 3, did not reveal how many vehicles it delivered in the Chinese market in 2018. It produced 254,530 vehicles in the U.S. and delivered 245,506 vehicles globally, representing year-over-year increases of approximately 152 and 138 percent, respectively.
Tesla reiterated in the annual report that its production in China would commence by yearend.
“We are constructing Gigafactory Shanghai in order to significantly increase the affordability of Model 3 for customers in China by reducing transportation and manufacturing costs and eliminating certain tariffs on vehicles imported from the U.S.,” it said in the annual report. “Subject to a number of uncertainties, including regulatory approval, supply chain constraints, and the pace of installing production equipment and bringing the factory online, we expect to begin production of certain trims of Model 3 at Gigafactory Shanghai by the end of 2019.”
Tesla expects much of the investment in Gigafactory Shanghai to be provided through local debt financing, supported by limited direct capital expenditures by itself. It is also targeting the capital expenditures per unit of production capacity at this factory to be less than that of its Model 3 production in Fremont, California, from which it has drawn learnings that should allow the company to simplify its manufacturing layout and processes at Gigafactory Shanghai.
“We expect to build a production process that is optimized and simplified for Model 3 production, comprised of stamping, body joining and paint shops and general assembly. We believe that the efficiencies of local production, as well as avoiding certain tariffs on U.S.-manufactured vehicles, will allow us to offer Model 3 at a lower average selling price in the largest market for electric vehicles in the world,” it said in the annual report.
Tesla CEO Elon Musk has indicated that Model 3 production is expected to ramp to a sustained rate of 7,000 vehicles per week at its Fremont factory and Gigafactory Shanghai will help it reach its goal of producing 10,000 Model 3 vehicles per week and an annualized output rate in excess of 500,000 units sometime between the Q4 2019 and Q2 2020. Global deliveries are expected to reach about 400,000 units in 2019, according to a message posted by Musk on Twitter on February 20.
Tesla began taking orders for the long-range rearwheel drive version of the Model 3 at the end of January from Chinese customers. The version has a range of no less than 600 km and will retail at ¥433,000. In early January, it began taking orders for the performance all-wheel and long-range all-wheel versions of the Model 3 at retail prices of ¥560,000 and ¥499,000. Tesla is also offering Enhanced Autopilot as a standard feature exclusively on the Model 3 in China to woo customers.
So far, Tesla has built a charging network covering more than 170 cities in China, including over 1,500 Superchargers and 1,850 destination chargers.