Electric Cars

Tesla inches closer to building EVs in China with new talks

It's not as simple as setting up a factory and going to town on the assembly line.

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An American automaker does not simply walk into China and start building cars. It's an arduous process, but Tesla is one step closer to going through with it.

Tesla is in exploratory talks with the Shanghai municipal government regarding setting up shop and building some of its electric vehicles in China, Reuters reports. There's no timeline in place, as the talks are at a very early stage, but it could help Tesla avoid the markup that currently plagues the cars it sells in China.

The Model S and Model X are expensive, tariff or not, so it's likely that Tesla will place its Chinese focus on its more affordable upcoming models.

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China's an odd place to sell a car. If you want to import vehicles into China for sale, the country will add a 25 percent tariff, making even affordable vehicles somewhat expensive. The other option is to partner with a local manufacturer and set up shop on the mainland, which allows foreign automakers to bypass the tariff. The foreign company must own no more than 50 percent of that joint venture, as well.

The original goal, according to the New York Times, was to give additional support to Chinese automakers so that they may one day export vehicles to other regions. That was years ago, though, and some Chinese automakers are even preparing to sell vehicles in the US. Yet, the program still exists.

Right now, it's unclear what company Tesla plans to partner with, and the automaker did not immediately return a request for comment. But Reuters pointed out speculation that could involve Tencent, a Chinese tech firm that recently purchased 5.0 percent of Tesla at a cost exceeding $1 billion.

It's also unclear what cars Tesla will build in China, if it receives the go-ahead to do so. A supplier told Reuters that the Model 3 and its crossover complement, the Model Y, are the most likely choices. I'd be inclined to agree, given the relative affordability of at least the Model 3, which is one of its selling points in the US. Building it in China would allow it to be affordable there, as well, thanks to the tariff bypass.