In a time when American companies are eager to diversify away from China, Elon Musk is looking past geopolitical risks and unpleasant zero-Covid memories and doubling down on Tesla’s manufacturing base in the country. Yesterday (April 9), the Tesla CEO announced plans to build a battery factory in Shanghai, where it already has a Gigafactory producing electric vehicles.
Musk had planned a trip to China over the weekend to visit the Shanghai Gigafactory and meet local government officials, according to Bloomberg. It’s unclear if he actually made the visit. Musk’s mother, Maye Musk, a model and dietician, was seen touring the Shanghai Gigafactory on April 6, according to her Twitter posts. She also visited several other Chinese cities during her trip.
The new battery plant is expected to break ground in the third quarter of this year and begin production in the second quarter of 2024, Tesla representatives said at a signing event of the project yesterday.
The new plant won’t produce batteries for electric cars, however. It will make Tesla’s Megapack, a huge battery that can store enough energy to power about 3,600 homes for an hour. The product is part of Tesla’s energy storage business that seeks to replace public power grids. The company opened its first Megapack factory last year in Lathrop, California. Both the Lathrop and Shanghai factories will have the capacity to manufacture 10,000 Megapacks per year to be sold globally.
Elon Musk is doubling down on China
Tesla’s investment in China came at a time when growing geopolitical tensions are increasingly scaring foreign investors away from the country.
Apple, the largest American company with an extensive manufacturing network in China, started moving some of its production to India and other Asian countries last year in the wake of Covid disruptions at a large iPhone factory in China.
Covid restrictions also interfered with manufacturing at Tesla’s factory in Shanghai, causing the EV maker to miss out on producing tens of thousands of vehicles.
According to an October 2022 survey by the American Chamber of Commerce in Shanghai, the number of U.S. companies cutting their investments in China doubled in 2022 from the previous year.
Musk seems bullish on China nevertheless. In late 2022, Tesla slashed the prices of its electric cars in China in a bid to boost sales before it offered similar cuts in the U.S. and other markets.
“The battery factory announcement shows Tesla is doubling down on China and not backing away,” said Dan Ives, an analyst with Wedbush Securities. “For Tesla, the heart and lungs of its story is China. Of course, it’s going to build out in the U.S. and Europe, but it’s not going to abandon China.”
Tesla currently produces electric cars at four factories globally. The Shanghai Gigafactory alone makes more than half of all the vehicles Tesla sells each year. On the sales side, Tesla sells about a third of its cars in China.