Giga Shanghai – Tesla Tries To 100% Localize Production In China

JAN 14, 2022 AT 02:06 AM

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Elon Musk is going to cover the world with his Giga Factories that take less than 1 year to construct and can produce up to 500 000 cars a year with a lot of parts and services localized in the target market. You probably know that Tesla sees China as a huge prospective market and is ready to invest money to make Chinese people choose Tesla EVs instead of buying local brand vehicles. Giga Shanghai is proving that Musk wants the Chinese market.

The Gigafactory 3 was built in 2018-2020 and it is now capable of producing 200 000 to 250 000 cars a year. Its main task is to assemble Tesla Model 3 and Tesla Model Y for the Chinese market, but there are also other things that the factory is currently doing. Giga Shanghai is one of the most expensive projects in Tesla’s history, and today we’ll get to know how exactly Elon Musk is going to get the invested money back with good revenue.

What is the Chinese Gigafactory doing now?

The factory was launched in 2019, but the construction works haven’t finished yet. From late 2019 Tesla has been assembling cars for Chinese buyers in Giga Shanghai, but now it has also started producing batteries, powertrains, seats, and other parts for the vehicles in new sections of the factory. Localization is extremely important for making cars more affordable for clients. And Elon Musk knows how to achieve nearly 100% localization for cheaper vehicles.

In all overseas factories (there are now two of them) Tesla produces batteries and powertrains, assembles cars from parts delivered from the US, produces seats, and seeks ways for a higher localization rate. Giga Factories were at first seen as the cheaper way to produce batteries because delivering them along with the cars was too expensive. Now Giga Shanghai as well as Giga Berlin is a complex factory that can produce a car from scratch and even get almost all needed materials on the local market.

The factory now produces Model Y and Model 3 and it’s going to grow the production up to 500 000 cars a year for Chinese customers. It’s absolutely possible now, as Tesla claims that they are going to achieve 90% of localization in the process of production within the next year or two.

In 2020 the factory in Shanghai started producing right-hand vehicles that are obviously made to export to Australia and New Zealand. Musk sees China as the main place for producing and selling cars and gaining more revenues thanks to lower costs.

Why China?

A lot of experts were really surprised when Musk announced that Tesla was going to build Gigafactory 3 in China. There are so many prospective markets, but Telsa chooses the country that has a really unstable relationship with the US and may use the Giga Shanghai factory as a trading object during any kind of political or military conflict. Tesla reportedly invested 2 billion US dollars to build the factory and fulfill all the demands of the Chinese authorities. And that was a huge investment, really.

But Musk knows well that China is one of the best markets where good cars will sell like tacos on the main street of the busy city. Chinese rich don’t feel like buying local goods, even if we talk about luxurious goods like Nio cars or other exclusive vehicles that cost a lot of money. They would pay 200 grand to buy a BMW just because the brand is German. So, Tesla has a big chance to become the overseas brand for the rich and sell thousands of cars monthly on the local market.

Also, Tesla now has access to the cheapest market of parts. It now has contracts with hundreds of Chinese companies producing a lot of different parts for Chinese Tesla cars. Instead of paying millions for delivering parts from the US Gigafactories, they buy local goods and make the Chinese government love them.

Giga Shanghai has nearly 2000 employees, the major part of the production is autonomous, so the quality is really good. The salaries at Gigafactory 4 range from 3000 to 4500 US dollars a month, and that’s not so much. The average salary at Gigafactory 1 and Gigafactory 2 is somewhere near $75 000 a year. The Chinese workers are twice cheaper than the American ones for Musk. A typical salary in China is around $17 000 a year, so Elon Musk can have the best professionals from other EV manufacturing companies leaving their jobs and going to Giga Shanghai for a better salary.

Will they localize Tesla production to 100%?

Now Tesla is building engineering and design groups in China and they will probably work to help the American mother company do the job better. The group of good Chinese designers will cost less than 1 famous car designer in the US. And the efficiency of the group might be much better.

But we still doubt that Musk will want to 100% localize the production in China. This implies higher risks because you never know what to expect from Chinese authorities that still build communism in their country and can confiscate anything if they just feel like that. So, at least 10% of the production like motors, some body parts will still be located in the US.

Now rumors start spreading that the Gigafactory 6 may be Giga Shanghai 2 because Tesla sees a lot of prospects in this region. Who knows, maybe in a couple of years they will start exporting vehicles to the US instead of producing them here? Because it seems to be a lot cheaper and more profitable for the company.