As first orders are taken for Tesla Gigafactory 3 in Shanghai, China is being set up, the value of chinese production for Tesla is being vastly underestimated. Local production clears several road blocks for Tesla and implements big improvements in production complexity, cost efficiency and legal burdens.
Production Complexity
As Sandy Munro of Munro & Associates states, the rear body design of Tesla Model 3 is overly complex and therefore unnecessarily costly to produce. For example, the rear wheel well is composed of 9 parts that are riveted, sealed or welded together, where a normal car would have one stamped part.
This requires many steps in the body assembly, which makes operating and setup of the production line complicated and therefore costly and time-inefficient. Sandy Munro says the body in general could use less weight and parts for the same safety achievement. He is quoted to say “This body is their single biggest problem, It’s killing them”. Tesla fired the responsible person, and is expected to design a simpler and therefore cheaper body for the production in China. This is also a reason, why Tesla can start production in China much faster then before in Fremont, California.
Cost Efficiency
It is obvious that Tesla will profit from much lower locally sourced components and wages in China compared to the very high living cost in Fremont in the Bay Area. Add to that the lower production complexity and general experience gained from producing Model 3 in the US, and Tesla is set to have much lower cost per car. Munro remarked “When (Elon Musk) takes (the Model 3) to China,
(Tesla’s) gonna make a gazillion bucks. I guarantee it”
Tesla Prices in line with Premium cars
The imported base Model 3 had a price of 377,000 yuan (52.740$), the locally produced model is 13 % cheaper with only 328,000 (45.885$).
This is in range of other premium vehicles, as the BMW 3 with 313.000 yuan (43.787$), the Audi A4 with 286,800 yuan (40.121$) or the Mercedes C-Class with 307,800 yuan (43.059$).
Legal
By producing cars locally, Tesla doesn’t need to pay import duty of 15%. Also, by will of the chinese government, the Gigafactory 3 is the first fully foreign owned car factory in China. This means Tesla will get 100% of the profits of chinese produced cars, in comparison to the ~50 % of other auto makers. In the same vein, all Value Added Taxes on Tesla models were lifted, which is another 10% that Tesla receives, but not other foreign manufactures in China. In addition, all electric vehicles in China are much easier to buy, as in most regions number plate registration is not limited, compared to auctions for combustion engine vehicles.
With all these advantages coming together, Tesla will have a vastly better production efficiency and sales in China. That is very good for Tesla’s goal of producing 3,000 cars per week next year from Shanghai.