Aug 1, 2018, by Bloomberg News
Tesla Inc., under fire from investors for burning through cash as it ramps up production, will look to China to at least partially fund the cost of building its first factory in the world’s fastest-growing auto market.
The electric-car pioneer is considering raising some of the $5 billion it intends to invest in the plant near Shanghai from local partners, according to a person familiar with the plans, who asked not to be identified as the matter is private. Chief Executive Officer Elon Musk secured a preliminary deal to build the factory last month, just days after China’s retaliation against President Donald Trump’s tariff hikes boosted the cost of exporting cars made in the U.S.
Chinese funding partners could enable Tesla — which is yet to turn a profit — to share the financial burden of realizing an ambitious expansion plan that includes building a factory in Europe. While analysts say the California-based company will need to raise capital to bring its plans to fruition, so far Tesla has insisted it doesn’t need to do so. The carmaker had just $2.7 billion in cash at the end of the first quarter, and has been spending billions of dollars on accelerating production of its Model 3 sedan.
The carmaker didn’t respond to an email seeking confirmation of the China plans, and a spokeswoman for Tesla in the country didn’t return phone calls.
Tesla shares rose about 0.6 percent to as high as $300 in trading before U.S. exchanges opened Wednesday. The stock has lost 4.2 percent this year through Tuesday, giving the company a market value of $50.6 billion.
Securing a factory in China became more crucial for Tesla after the nation imposed a 25 percent additional tariff on imports of U.S.-made cars in response to Trump’s levies on $34 billion of Chinese goods. China is the world’s biggest market for electric cars and the second-largest market for Tesla, trailing only the U.S. Tesla expects to start producing the Model 3 in the new Chinese factory by 2020, the person said.
China’s ambition to boost annual sales of new-energy vehicles tenfold by 2025 has encouraged hundreds of automakers to produce electric vehicles in the country. Backed by investments from local governments, tech entrepreneurs and venture-capital firms, Chinese EV startups are trying to capture the market before Tesla increases its presence.
Tesla didn’t provide details on how much the factory would cost when it announced the preliminary agreement with the Shanghai government last month.
Despite his significant plans, Musk has ruled out the need to sell new shares or bonds this year, insisting that Tesla will be able to fund itself as it manufactures more Model 3s. The company, which is scheduled to report quarterly earnings on Wednesday, sees the Model 3 as crucial to its plan to attract mass-market buyers. It’s Tesla’s least-expensive car so far and Musk has said its success could make the firm profitable in the second half.
Other automakers are also looking to double down in China after the tariff hit, which doesn’t apply to cars made locally by foreign brands. BMW AG also centers a lot of its production in the U.S. and is poised to become the first foreign manufacturer to own majority control of a Chinese car venture.