Tesla to bring portion of Model 3 production to China next year

Tech News

Tesla, which reported its first quarterly profits in two years Wednesday, is looking to extend its earnings streak by bringing its new Model 3 to customers beyond North America. And part of that plan involves accelerating its manufacturing plans in China.

Tesla saw its revenue skyrocket to $6.8 billion in the third quarter (and a $312 million profit) thanks to sales of its new Model 3 vehicle, despite production bottlenecks and more recent issues with delivery logistics. The company was able to achieve that profitability milestone just through sales in the U.S. and Canada. That leaves two other massive markets on the table. Cue Europe and China.

Tesla said Wednesday it will start to take orders for the Model 3 in Europe and China before the end of 2018. Tesla said it will begin deliveries of the Model 3 to Europe early next year.

“The mid-sized premium sedan market in Europe is more than twice as big as the same segment in the U.S.,” Tesla said in its shareholder letter released Wednesday. “This is why we are excited to bring Model 3 to Europe early next year.”

Notably, the company is further accelerating its timeline for China and said it will bring portions of Model 3 production to the country next year.

“We are aiming to bring portions of Model 3 production to China during 2019 and to progressively increase the level of localization through local sourcing and manufacturing,” Tesla said in its earnings report. “Production in China will be designated only for local customers.”

Tesla said earlier this month it plans for as rapid build out of a factory in China. But there’s something new here. The term “portions of Model 3 production” is the important phrase. This could be referring to a term used in the manufacturing world known as a complete knock down. CKD is basically a kit of non-assembled parts of a product, like say a Model 3. It’s a strategy used to avoid tariffs when shipping to foreign countries.

Tesla has plans to build a factory in Shanghai, but construction hasn’t even begun yet.

The company secured in October rights to about 210 acres of land in Lingang, Shanghai, the site of the electric automaker’s planned factory and its first outside of the U.S.

Tesla warned in its production and delivery report in early October that tariffs, combined with the cost of shipping its vehicles via ocean carrier and the lack of access to cash incentives available to locally produced electric vehicles, has put the company at a disadvantage in China. Tesla reiterated those cost constraints in its third-quarter earnings report.

Tesla reached a deal in July with the Shanghai government to build a factory that it says will be capable of producing 500,000 electric vehicles a year. Once construction begins, it will take about two years until Tesla can produce vehicles. It will be another “two to three years before the factory is fully ramped up to produce around 500,000 vehicles per year for Chinese customers,” a Tesla spokesman said at the time.

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