Tesla said to reach pact with Shanghai for China production

SAN FRANCISCO: Tesla Inc has signed a preliminary agreement with the city of Shanghai to explore production in China, moving the electric-car maker a step closer to lowering its manufacturing and shipping costs, according to people familiar with the matter.

The agreement was reached on Thursday in Shanghai, said the people, who asked not to be identified before the information is made public. A representative for Tesla couldn’t immediately comment. A spokesman for the Shanghai government said he’s seeking information from the relevant departments.

Reaching a deal to produce cars in China would help Tesla better compete with local rivals because it would eliminate a 25% import tariff that makes Tesla’s Model S sedans and Model X sport utility vehicles more costly than in US showrooms. The company is scheduled to begin production in July of the Model 3, the cheapest model in the lineup so far.

“The entrance of Tesla into local production is a necessary step for Tesla to gain relevance in the world’s largest EV market,” said Bill Russo, managing director of Gao Feng Advisory Co. and a former head of Fiat Chrysler Automobiles NV’s Chrysler unit in China. “Tesla’s participation thus far has been limited to imported Model S and Model X cars.

However, unlocking the mass market will require a price point that is only achievable with a locally produced Model 3.”