Tesla to build EV plant in Shanghai China

Tesla is reported to have made an arrangement with the Shanghai city government to build a manufacturing plant in the free-trade zone of the city.

The report is in the Wall Street Journal. The move could give Tesla traction in the fast-growing Chinese electric vehicle (EV) market. Usually foreign car makers partner with local Chinese companies, but apparently Tesla will own the factory. Chinese officials have begun considering relaxing their rules of foreign investment in order to encourage more investment in EV production. The arrangement will be the first of its kind for a foreign auto maker. Tesla may still face a 25 percent import tariff.

In June when Tesla announced that it would build the factory, it said that it would probably still keep most of its production in the US but that it needed to establish factories to ensure that their cars were affordable in the markets they served.

Xin Guobin, the Chinese vice minister of industry said in September that the country was beginning to phase out sales of fossil fuel vehicles as it struggled to curb emissions and pollution. He said that existing manufacturers needed to produce more EVs. Tesla can aid in satisfying what will be an increasing demand for EVs.

Last year, the Chinese government proposed that by 2018 eight percent of the total fleet of vehicles in China consist of fuel efficient vehicles.

China is now the largest market on the globe for automobiles. There were over 28 million vehicles sold in 2016. Xin Guobin said that a time line was being worked on to phase out production and sale of vehicles powered by fossil fuels. Setting a time line for the ban would encourage the production of more EVs Guobin claimed.

China will not be alone in banning production of fossil fuel powered vehicles. France and the UK have already announced they aim to ban sales by 2040. Auto manufacturer Volvo announced that it will only produce EVs or hybrids by 2019. Land Rover plans to go all electric by 2020 and Aston Martin will go completely hybrid by 2025.

The ban may be needed as consumers are not lining up to buy EV's in China. Nevertheless, most companies see a lucrative future in the EV market in China as the government provides incentives for companies to produce EV's and sees them as a way of solving some of China's pollution problems.