While Elon Musk has been waxing lyrical about the opportunities that the Chinese electric car market offers, it is very unlikely the company will move its head office away from the U.S. Even though the company’s initial dealings with China proved difficult, we recently saw the opening of the largest Tesla factory to date in China. The new factory will focus upon the battery technology required to fuel future Tesla vehicles and is seen by many as a major development.
It is also very interesting to see Elon Musk suggesting that Chinese electric vehicle sales could match, or even beat, their US counterparts within the next five or six years. Chinese volumes are currently well behind U.S. sales but there is no doubt the Chinese authorities are more proactive and more forceful in their pursuit of greater electric vehicle usage.
Cheaper production costs
It is well-known that on the whole, China offers the ability to manufacture products significantly cheaper than countries such as the U.S., U.K., etc. Even though this gap is reducing as the Chinese economy grows and individual wealth follows suit, it will likely be some time before Chinese and U.S. production costs are comparable.
There may be some hurdles to navigate with Chinese regulations stating that overseas companies need to partner with local businesses. However, there is also the opportunity that this could further reduce the overall cost of producing future vehicles with Tesla’s so-called “affordable mass-market car project.”
Is china the future of EVs?
The fact that the population of China is so large and the authorities are so keen to introduce electric vehicles, in many ways makes this the perfect market for companies such as Tesla. Rumours and counter rumours suggest that Tesla may still be making a capital loss on the production of some vehicles at this moment in time, so a reduction in production costs will feed directly into the bottom line. At the end of the day, despite the fact that Tesla’s loyalty remains with the U.S., money talks and if the company can shave any production costs from future vehicles this will be a win-win for all concerned.
Those who expect the relationship between Tesla and the Chinese authorities to be smooth and long-lasting may be disappointed. Indeed even before the opening of the company’s recent Chinese factory there were concerns that the relationship between the two parties was beginning to turn sour. However, recent indications suggest that any disagreements have been worked through and the future looks bright, not only for Tesla, but also the Chinese electric vehicle market – at least at this moment in time!
There is no doubt that reduced manufacturing costs in China will have a material impact upon the Tesla balance sheet in years to come. When you also consider the potentially enormous local electric vehicle market, the creation of a major central hub in China makes sense for all parties. Whether Elon Musk is firing a parting shot across the bows of the U.S. authorities, who have not always appreciated his entrepreneurial spirit, remains to be seen. However, be in no doubt, Elon Musk will do what is best for Tesla, even if this means switching a significant percentage of manufacturing to China.