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Over the past few months, Tesla has been stretching itself to the absolute limit of investing more and more money into expanding its model 3 production lines and ramping up model 3 production. They are also continuing its extensive research and development on the upcoming Tesla semi and second-generation Tesla Roadster. This includes Tesla building a temporary structure in the parking lot of its Fremont production facility to expand model 3 production as quickly as possible. while simultaneously undergoing a major internal restructuring to keep overheads as small as possible even with restructuring.

Why Tesla’s Gigafactory 3 is So Important For Tesla

Tesla needs to build more cars and more energy storage products in order to turn a profit and with its two Gigafactories and Fremont production facility. All operating as close to capacity as possible Tesla has been on the lookout for a new Gigafactory location for some time and it’s just found one in the Shanghai Ling gang industrial zone in China like Tesla’s Gigafactory 1 where Tesla currently makes all of the batteries it needs for its model 3 sedan. the Tesla GigaFactory where Tesla makes photovoltaic solar panels the newly announced Gigafactory 3 will be a massive structure capable of high-volume production unlike the Gigafactory 1 & 2. however Gigafactory 3 will be so large that Tesla says it will be producing half a million cars a year when it’s running at full speed as well as all the battery cells battery packs and motors that those cards need in other words this is going to be a massive one-stop shop for Tesla where raw materials come in one end and fully finished electric cars come out the other. Tesla says it’s already in the process of obtaining all the necessary permits and approvals and hopes to begin construction on the facility in the near future. The vehicle production is expected to start two years after the start of construction with the half million vehicles per year milestone expected to be reached two or three years after that. if Tesla can keep to its own schedule something which it’s really struggled with in the past this whole announcement could see Tesla more than double its current vehicle production in the next five years or today’s current production volumes and that’s very good news indeed for the electric vehicle industry and anyone who wants to see electricity succeed in taking over from fossil fuels as the vehicle fuel of choice.

The fact is this the new GigaFactory in China is even more important for Tesla in some ways than the fact that the facility has been announced. and it’s all to do with the market in China Tesla’s current overheads and politics. you see right now Tesla like many other US automakers out there is currently feeling the burden of the ongoing trade war between the US and China. despite appearing to come to some concessions over import tariffs between the two countries earlier this year and China announcing it with slashing import taxes on US car imports from 25 to 15 percent things are heading downhill fast. because the US recently announced 35 billion dollars of import taxes on Chinese made goods entering the US-China has retaliated dramatically hiking taxes on newest made cars meaning that automakers like BMW and Tesla have been forced to raise the prices on vehicles imported into the country.

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In Tesla’s case, that means an entry-level Tesla model S 75d now costs the equivalent of 128500 US dollars from a Chinese buyer up from 107400 US dollars before the retaliatory import tax took effect. as for the Tesla Model X well the high-end P100 D variant now costs the equivalent of 240000 US dollars in China which is about 90000 US dollars more than you’d pay in the US. admittedly part of that increased cost comes from the cost of shipping finished cars from California to China but with or without tariffs the same problem exists. Chinese market Tesla’s are a lot-lot more expensive than they are in the rest of the world. making Chinese market Tesla’s in China then is a great move for Tesla as it should dramatically reduce overheads and as one of the first companies to build a new factory in China that is not partly owned by a Chinese company. Tesla will retain 100% ownership the company looks to be in a very good position indeed. I should note too that producing testers in China will be cheaper for non-Chinese market cars as well since it’s likely that wages and labor laws in China won’t be as high or as strict as they are in the US.

There’s nothing to say that Tesla will pay its Chinese workers less than it’s American ones but I’m guessing even a living wage in China will be less than a living wage in America. of course, there is one fly in the ointment how Tesla is going to pay for this all. with more Tesla Model 3 is coming off the production line and Tesla aiming to get model 3 customer handovers down to just five minutes each cash flow should certainly improve in the next few months but considering Tesla’s first Gigafactory cost more than five billion US dollars to build Gigafactory 3 isn’t going to be cheap even if you factor in the lower build cost associated with the production of a Chinese facility versus some other parts of the world. and Nina Moscone or Tesla has detailed how this is going to be financed so we’re going to have to wait a little longer to find out.

Let us know what you guys think about Tesla’s new Gigafactory 3 in the comment section below.

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