EXCLUSIVE Tesla Slows Land Buy in Shanghai as US-China Tensions Rise

American electric car maker Tesla Inc (TSLA.O) has suspended plans to purchase land to expand its Shanghai facility and turn it into a global export hub.

With 25% tariffs on imported Chinese electric vehicles on top of existing taxes under former President Donald Trump, Tesla now intends to limit the proportion of Chinese production it produces worldwide, two of the four people said.

Tesla had previously considered expanding exports of its China-made entry-level Model 3 to additional markets, including the U.S., sources told Reuters, a plan that had not previously been reported.

Tesla is currently shipping Model 3 made in China to Europe, where it is building a factory in Germany.

The Tesla plant in Shanghai is designed to produce up to 500,000 cars per year and is currently producing Model 3 and Y vehicles at the rate of 450,000 units per year.

In March, Tesla waived a property across the street from the plant as it was no longer aiming to significantly increase China’s manufacturing capacity, at least for the time being, three of those surveyed said and declined to be named as the discussions were private.

In a statement to Reuters, Tesla said the Shanghai plant is “developing as planned”.

The Shanghai city government, a major proponent of Tesla establishing a wholly-owned factory in China – the first and only foreign car plant not required to form a joint venture – did not respond to a request for comment.

Tesla had never announced its intention to acquire the land, which is roughly half the size of the 80-acre property on which Tesla’s current facility is located, that would allow the company to add another 200,000 to 300,000 cars increase, said two of the people.

Tesla sales in China are rising despite mounting regulatory pressures in the country after consumers debated disputes over product safety and control over data handling.

China had sales of $ 3 billion in the first three months of this year, more than tripling last year’s sales and accounting for 30% of total sales.

LAND PLAN

Tesla is led by Elon Musk, the CEO of mercurial, and is known for changing its strategy, including in China.

Construction materials released on a government website in March show that Tesla is renovating its Shanghai plant to expand capacity.

Tesla still has land at its Shanghai location that is intended for production, but is now used for parking. One of the respondents said Tesla could expand its capacity to over 500,000 at its existing location. Another said Tesla could acquire more land for more auto production lines in the future.

Separately, Tesla is building facilities at its Shanghai plant to repair and replicate key components such as electric motors and battery cells, as well as to build EV chargers.

The Shanghai government has spoken to several companies to sell the land for the production of commercial vehicles with new energy, said a person with direct knowledge of the matter.

Tesla is facing increased competition in China from domestic players like Nio Inc (NIO.N) who are considering mass-market products under a different brand.

Even before the trade war tariffs, relatively few cars made in China were shipped to the US.

General Motors Co (GM.N) sells its China-made Buick Envision in the US and pays the additional 25% tariff, even though the SUV is not a large-volume model.

($ 1 = 6.4310 Chinese yuan renminbi)

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