Tesla's China expansion strikes a speed bump amidst industry overcapacity

The ambitious plan of Tesla for boosting auto production in Shanghai, which is its most valuable plant worldwide, is reportedly hinging on China's approvals for developing 70 hectares (172 acres) of former farmland presently overgrown with wildflowers.

Apparently, Tesla can now turn a victim of its own success in the largest auto market in the world, questioning the plans to exploit its cost advantage from Chinese production to drive exports.

In fact, Tesla was formerly courted by Beijing to help encourage the development of a local electric vehicle (EV) industry.

According to executives at rival companies and analysts, the National Development and Reform Commission (NDRC), the Chinese state planner, has been cautious regarding approving the new EV production plans by all automakers driven by the increasing worries about overcapacity and the deepening price war started by Tesla.

As per Bill Russo, the founder and CEO of the Shanghai-based advising business Automobility, China has a surplus capacity for producing automobiles of nearly 10 million units annually, or roughly two-thirds of all North American output in 2022.

In a heartfelt May 2022 letter thanking the local government for its assistance during the Shanghai shutdown over COVID-19, Tesla provided specific plans to increase the yearly production capacity by 450,000 vehicles at the new Shanghai location, located about 3 kms from its current plant. The annual production would be worth more than $18 billion based on retail prices.

According to sources, Elon Musk, the CEO of Tesla, brought up the expansion during his brief trip to China at the end of last month. However, neither he nor Chinese officials made any public announcements regarding the matter.

Post meetings with Vice Premier Ding Xuexiang and other senior Chinese officials, Musk informed a small group of Tesla staff about the positive progress he witnessed in discussions regarding the expansion without elaborating, as per reports.

Source Credits: https://www.zawya.com/en/opinion/business-insights/teslas-china-expansion-hits-speed-bump-amid-industry-overcapacity-jn8lqq9g