Tesla (NASDAQ: TSLA) will make history this year when it becomes the first foreign company to build a wholly owned automotive factory in China. Tesla broke ground on its Shanghai factory in January, and this week the company secured a new round of funding to ensure the project will go ahead without delay.
Tesla’s presence in Shanghai will give the company a unique competitive advantage, while also protecting it from any future trade tensions between the United States and China.
Funding from Local Chinese Banks Will Ensure Gigafactory is Completed
Tesla’s Gigafactory in China will produce automobiles and battery components for the Asian market. Initially, the company expects to produce up to 3,000 Model 3 cars per week.
The company negotiated with several Chinese banks to gain access to $521 million in loans this week. The company also renegotiated an existing credit agreement, enabling it to borrow up to $700 million in the future if necessary.
Banks that will be funding Tesla’s Chinese expansion include:
- China Construction Bank Corp.
- Industrial & Commercial Bank of China Ltd.
- Agricultural Bank of China Ltd.
- Shanghai Pudong Development Bank Co.
Although China’s banks operate autonomously, they are deeply linked to the Chinese government through the Ministry of Finance. Funding of Tesla is seen as an historical achievement. Foreign companies require a Chinese partner to operate in the market. Tesla has been given a special exemption, making it the first American car manufacturer to have a wholly owned plant in the country.
Chinese Factory is Key to Tesla Success
China is the world’s largest electric vehicle market, which makes it lucrative for Tesla.
Recent trade tensions and tariffs forced Tesla to lower its Chinese prices this year. The company took a hit on its profits to ensure that it retained market presence. The new factory, which is expected to be completed this year, will eliminate tariff and logistical obstacles. Tesla will be able to sell its Model 3 with a higher profit margin, while remaining competitive with local producers.
Tesla investors responded positively to the news on Thursday, with stock closing 0.13% higher in the regular session, and 0.95% higher in after hours trading.
Tesla’s stock has struggled this year, leaving the price down -16.89% since January. However, long term investors are confident that the company will be able to capitalize on its position as an electric vehicle innovator and market leader, in the coming years.
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