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There is China speed, and then there is Tesla speed

Ten months.

That’s all the time it took for Tesla to break ground for its Shanghai Gigafactory, also known as “Gigafactory 3” or the “Dreadnaught,” and start trial production.

And not only was it built faster than the original Gigafactory in Freemont, California, the vehicles made in Shanghai will also be much cheaper to build.

“We have also dramatically improved the pace of execution and capital efficiency of new production lines,” said Tesla in its Q3 2019 Update letter released on October 23. “Gigafactory Shanghai was built in 10 months and is ready for production, while it was ~65% less expensive (capex per unit of capacity) to build than our Model 3 production system in the U.S. Continued volume growth and cost control are an important combination for achieving sustained, industry-leading profitability.”

Tesla in fact reported a surprising profitable quarter, as vehicle production and deliveries reached records of 96,000 and 97,000 units, respectively.

“We are already producing full vehicles on a trial basis, from body, to paint and to general assembly, at Gigafactory Shanghai. We have cleared initial milestones toward our manufacturing license and are working towards finalizing the license and meeting other governmental requirements before we begin ramping production and delivery of vehicles from Shanghai,” said Tesla in the letter. “China is by far the largest market for mid-sized premium sedans. With Model 3 priced on par with gasoline powered mid-sized sedans (even before gas savings and other benefits), we believe China could become the biggest market for Model 3.”

Just a week earlier, Tesla had received the official greenlight from the Ministry of Industry and Information Technology (MIIT) to start Model 3 production in Shanghai, getting listed on the 325th batch of the Catalogue of Road Motor Vehicle Manufacturers and Their Products. Tesla had said in its Q2 2019 Update letter in July that a simplified, more cost-effective version of the Model 3priced at ¥328,000 will be produced at the Shanghai Gigafactory with annual output capacity of 150,000 units, utilizing the second generation of the Model 3 production process. On October 25, Tesla officially began taking orders for the locally-produced Model 3 Standard Range Upgrade with Basic ADAS at a starting price of ¥355,800, and expects first deliveries to take place in Q1 2020.

Any way you look at it, a new milestone is about to be achieved in China: the Shanghai Gigafactory will be the first wholly foreign owned EV (and any other vehicle, for that matter) factory in China to start production.

Everybody talks about China speed, about how fast things change, get done and consumers catch on to new ideas. Tesla has just kicked that speed up another notch with the Shanghai Gigafactory. It has obviously benefited from China’s further opening up and reform of the manufacturing industry and more efficiency and simplicity and less red tape in paperwork. The aura of CEO Elon Musk and what the company has achieved as an EV startup to challenge and even beat the incumbents in the EV game over the last decade or so made it a perfect candidate to get the special treatment as the first foreign automaker to build a wholly-owned factory in China.

I call it “EV diplomacy.”

Whatever the reasons behind the speed, what Tesla has accomplished in China as far as local manufacturing is concerned is in sharp contrast to all sorts of difficulties the Chinese smart EV startups are facing to ramp up production or to even get a manufacturing license.

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