Tesla has reportedly reached a deal to build an electric vehicle factory in Shanghai, China.
The electric car maker hasn't confirmed the news yet, but it did reaffirm the promise it made in June, which is to outline its plans in the region before the end of 2017.
Tesla Factory To Open In China
According to Wall Street Journal (paywall) sources, Tesla has landed a deal with China, where it will set up shop in the free trade zone located in Shanghai.
For years, the company has been selling its electric vehicles in the country. However, it hasn't been easy because of the hoops that foreign carmakers have to go through to penetrate the market there, not to mention that it was "misled" by Chinese speculators.
If the report turns out to be true, though, then the automaker will finally be able to jump-start its sales in China, allowing its electric cars to be more acceptable locally, and even more or less guarantee it can meet the increasing demand for such vehicles.
The Problem In China
The aforementioned "hoops" that foreign carmakers have to jump through refer to the 25 percent import duty fee and costs of shipping vehicles to China.
One way they can circumvent these restrictions is to team up with a local company, but that would mean they will have to share their technologies and give up profits.
In Tesla's case, it doesn't want to compromise its intellectual property and independence.
To put two and two together, those factors are the roots of the problem why the electric car maker hasn't had the chance to establish a stronger presence in the country.
How Tesla's Deal With China Will Turn Out
If the deal indeed pushes through, then Tesla will retain its independence and technologies while potentially gaining a prominent position in China.
It will, however, still be subjected to the 25 percent import duty, but that's a small price to pay for what it wants to keep intact. More than that, reduced costs in production and shipping will make up for the tax charges.
The Bottom Line
Tesla could be starting up a factory in China soon — in Shanghai's free trade zone, to be exact — and it could finally see improved sales in the country, whose market it has wanted to crack for so long. And in the process, it won't be losing its independence nor its intellectual property by partnering with a local company, which are some of the reasons it has been holding out before.
