Tesla Takes High Risk Bet on China

The American electric vehicle carmaker will build a super battery manufacturing plant in Shanghai.

The tensions between the United States and China have never been higher. 

The two leading economic powers in the world are currently engaged in a latent technological war.

Other fronts of tension relate to the Chinese spy balloon that flew across the U.S.to gather intelligence from several sensitive American military sites and the Russian war in Ukraine. Beijing has backed Vladimir Putin’s Russia while Washington and its NATO allies support Ukraine.

It is in this tense context that Tesla  (TSLA) – Get Free Report, the world leader in electric vehicles, has just doubled down its investments in China.

Second Factory in China

The Austin, Texas-based carmaker will build a factory in Shanghai for the production of its Megapack energy storage system, the group and its CEO Elon Musk said on April 9.

“Our next Megafactory will be in Shanghai 🇨🇳—capable of producing 10k Megapacks per year,” the company, which held a signing ceremony in Shanghai, announced on Twitter.

“Tesla opening Megapack factory in Shanghai to supplement output of Megapack factory in California,” Musk confirmed.

The company didn’t unveil the amount of the new investments.

The American automaker will start building this new plant in the third quarter with the ambition of starting production in the second quarter of 2024.

The facility will initially produce 10,000 Megapack batteries per year, or about 40 gigawatt hours of storage, which will be sold worldwide. A Megapack unit can store enough energy to power an average of 3,600 homes for one hour, Tesla said. The company claims its Megapacks, intended to store energy and stabilize the supply of electrical networks, are able to store more than 3 megawatt hours each.

Tesla derives most of its revenue from its electric car business, but Musk has pledged to expand its solar and battery business.

This will be Tesla’s second in Shanghai, after the opening of a large site in 2019. The Shanghai plant, which produces the company’s two most popular models — the Model 3 and the Model Y — serves the Asian and European markets. Giga Shanghai has a production capacity of more than 750,000 vehicles per year, according to the company.

Musk in China

The announcement comes in the midst of tensions between the United States and China, which have evolved into a kind of technological war. Beijing is also trying to attract foreign investors and businesses, as the Chinese economy tries to revive itself, after years of covid-19, marred by the lockdown which saw the country shut off from the world.

In recent days, Apple  (AAPL) – Get Free Report CEO Tim Cook has been visiting China where he was welcomed by Premier Li Qiang, who became Premier last month. Li is leading the country’s efforts to convince international companies to continue investing in China. 

China is an important market for Tesla. It is its second largest market in terms of sales. Musk is reportedly in China this Easter weekend with Tom Zhu, the former head of China operations, who was promoted to head of production operations at Tesla last year. Zhu is now the company’s manufacturing leader. This promotion makes him one of the potential successors to Musk as CEO.

Tesla’s relationship with China has raised eyebrows in Washington, with President Joe Biden saying in November that the group’s leadership ties to foreign countries were “worthy” of scrutiny.

The announcement of the Megapack plant comes on the heels of Musk’s presentation to investors of an ambitious but vague growth plan last month. He had confirmed in early March the construction in Mexico of another vehicle production plant, near Monterrey in the north part of the country.

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