Electric car maker Tesla has struck a deal with the Chinese government to establish a manufacturing facility in Shanghai, a media report said. The production options for manufacturers in China are limited by the government. Also Read - Elon Musk now wants to travel to space but not on SpaceX rocketAlso Read - PUBG Mobile 1.5 “Tesla” update released: Elon Musk’s Gigafactory lets you build your Model Y
One option is to set up a joint venture, sharing much of their technology and profits with a Chinese partner while other is to manufacture in a free-trade zone in China, protecting their secrets but forking over steep tariffs.
The deal would allow the automaker to build a wholly owned factory in the city’s free-trade zone enabling Tesla to cut down production costs, but it would still likely incur China’s 25 percent import tariff, The Wall Street Journal reported.
Being inside a free trade zone means that unless Tesla can negotiate a special exemption, the cars could still be subject to China’s steep tariffs — treated as though they were still being shipped from outside China even though they were being produced in the country, the New York Times said. ALSO READ: Tesla files patent for replacing vehicle battery packs
According to Fortune, Tesla has been pursuing a Chinese factory for years and the Shanghai deal started to come into focus in June. Tesla has sold $1 billion worth of cars in China in 2016 and it had accepted a large investment from Tencent Holdings, a technology giant in China.
LMC Automotive, a global consulting firm, estimates that 295,000 battery-electric cars will be sold this year in China, compared with 287,000 in the rest of the world combined.