The Wall Street Journal, citing sources familiar to discussions, is today reporting that electric car manufacturer Tesla has reached an agreement to set up an owned manufacturing facility within China. (Paid subscription required.)

The deal is reportedly with Shanghai’s provincial government is would allow Tesla to construct a production facility in the city’s free-trade zone. Unlike past auto ventures among foreign based companies seeking to manufacture in China, this is not described as a joint-venture deal with a local auto manufacturer, but rather full ownership by Tesla. With such an arrangement, shipments from such facility within a free-trade zone would have autos still classified as imports and be subject to a 25 percent tariff. With this first of its kind arrangement with China’s provincial authorities, Tesla would not have to share profits nor technology intellectual property with a mandatory local partner.

Both Tesla spokesperson declined further comment to the WSJ other than reiterating a statement in June that the auto maker planned to define its production plans in China by year-end.  The Shanghai government also decline to comment.

According to the report, in 2016 Tesla had $1 billion in China based revenues, approximately 15 percent of total revenues.  Having a manufacturing foothold in China further opens the expansion of a local China based China supply chain that can lower overall manufacturing costs as well as an Asian foothold to ship autos to other Asian countries.

In our previous commentaries related to Tesla, Supply Chain Matters has opined that the manufacturer had an imperative to source production in other global regions to both meet its volume manufacturing needs and to control growing global distribution and transportation costs of finished vehicles. Thus, this deal makes lots of sense.

If the deal is as reported, the fact that Chinese authorities are allowing Tesla to build its own manufacturing facility without a domestic auto partner, that is exceptional as-well.

We suspect there will be other information related to development percolating business news wires in the coming days.

 

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