Tesla is in advanced talks with Chinese lenders for a $2 billion loan needed to build its massive Gigafactory in Shanghai, according to reports from investment research firm JL Warren Capital published on CNBC.
JL Warren is a New York-based research firm that focuses on American companies making significant investments in China. Per the reports, the Shanghai Pudong Development Bank, Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China are lined up in the list of expected backers for the financing of the Gigafactory.
So far, Tesla is the only automaker who isn’t based in China but was allowed to build a factory without a join ownership deal with a local firm. Tesla’s CEO Elon Musk has spoken repeatedly about how important China is for the company on its latest earnings call.
We need to bring the Shanghai factory online. I think that’s the biggest variable for getting to 500,000-plus a year. Our car is just very expensive going into China. We’ve got import duties, we’ve got transport costs, we’ve got higher costs of labor here.
Tesla is working around the clock to get its Gigafactory off the ground thanks to the U.S.-China trade war which saw car prices surge in China. When completed, the factory will focus on the production of Model 3 and Model Y cars for sale in China alone.
The California based automaker registered two businesses in the free-trade zone of Shanghai—one for car production and sales, the other for financial leasing services.
Aiming to finish initial construction this summer, start Model 3 production end of year & reach high volume production next year
— Elon Musk (@elonmusk) January 7, 2019
Keeping up with the ‘Wangs’
China has seen the growth of its middle-class rise in recent decades. Research from Credit Suisse concluded that the Asian country could overtake the U.S. as the country with the largest middle class. The Global Business Policy Council also predict private consumption in China to be the largest contributor to the nation’s economic growth.
It’s becoming a trend for Chinese to purchase items that improve one’s social image, case in point—the iPhone and now the Model 3.
An electric car that currently costs 433,000 yuan (around $64,000) in China, which would become cheaper once Gigafactory comes to life later this year. Not only is China’s middle class growing, but the country has also been quite open to electric vehicles.
Last year, the sale of electric cars in China rose 83 percent year-on-year basis, and these figures only become appreciable when you consider a 2.76 percent decrease in the sales of light-duty vehicles in the country.
When these factors are considered, it becomes evident why Tesla is interested in this lucrative market.
Tesla’s Gigafactory would allow the company to tap into government subsidies and incentives, designed to make energy vehicles affordable for Chinese users. Since 2012, the Chinese government has given $60 billion worth of subsidies and incentives to automakers in China, according to auto-tech advisory firm ZoZo Go.
How long will Musk be CEO?
Back in the U.S. though, Musk’s name is never far from the media, and it often has to do with one controversy or another. Yesterday, the Tesla boss changed his name on Twitter and announced to his followers that there would be Tesla news on Thursday.
— Elon Musk (@elonmusk) February 27, 2019
Elon Musk is now “Elon Tusk,” with an elephant emoji accompanying the Tusk. Two days prior, the U.S. Securities and Exchange Commission (SEC) told a judge to hold the Tesla honcho in contempt for publishing misleading comments about the automaker’s production goals. Musk has until March 11 to inform the court on why he shouldn’t be held in contempt for his actions.
The settlement comes from an agreement Musk had with the SEC following his infamous “funding secured” tweet that had him removed as chairman of Tesla. As part of his agreement, Musk and Tesla agreed to have the CEO run his tweets by the company’s lawyers before publishing them on the internet.