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Narrator: Although Tesla is based in California,
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China seems to be where it's found its biggest supporters.
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In 2019, the company saw its China sales increase
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by 161% from the previous year.
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That's 40,000 newly registered Teslas.
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Despite the recent pandemic that saw Chinese car sales
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decline by 42% for the first quarter of 2020,
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Tesla bounced back immediately with record-setting months
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in March and April.
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But Tesla's successful run in China hasn't come
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without plenty of help from tax exemptions on sales
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to billions of dollars in funding for the construction
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of its Shanghai factory.
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China and Tesla have formed an uncommon
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and symbiotic relationship, but why?
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First, we have to go back to how Tesla got there.
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Since 2015, China has been the world's
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largest electric car market.
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As Tesla saw its China sales triple to $1 billion for 2016,
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then reach $2 billion for 2017,
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it became clear the EV builder had an audience there.
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However, as other automakers had already found,
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the US trade war with China was a major obstacle
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to selling cars there.
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With heavy taxes being slapped on Teslas imported to China,
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an $80,000 Model S from the US was selling
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for around $140,000 in China.
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The only way to sell cars to Chinese consumers
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on a larger scale would be to build them there.
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But the cost of producing cars in China was not cheap.
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Government policy forced foreign automakers
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to work with a joint venture partner in China
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and share half the profits.
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However, in 2018 the country began rolling back
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these restrictions.
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Elon Musk was quick to take advantage and that July,
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signed an agreement to build a wholly owned factory
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in Shanghai.
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With $1.6 billion in funding from Chinese banks
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and record-fast approvals by the government,
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Musk constructed Tesla's third gigafactory.
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By August 2019, the plant was already building vehicles.
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The factory is currently making 3,000 cars a week
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or around 150,000 a year.
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By the end of 2021, when the factory is fully operational,
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Musk plans for it to be churning out 500,000 cars annually.
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And with China now exempting Model 3s from a 10% sales tax,
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there's no telling how many the EV giant stands to sell.
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So why has Tesla received such a warm welcome from China?
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To start, there's the incredible amount of money
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China stands to make off the factory alone.
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The Shanghai facility was financed almost entirely
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through state-controlled banks
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who can expect a pretty big return on their investment,
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plus, Tesla purchased a 50-year lease of the land,
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which is money that goes directly to the government.
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Additionally, 30% of the factory's parts
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are purchased locally.
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Musk says by the end of 2020,
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he plans for that to reach 100%.
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On a wider scale though, Tesla could be the boost
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China's declining car market needs.
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In 2019, total car sales in China fell by 8%,
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after falling 3% in 2018.
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More recently, factory closures due to COVID-19
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had disastrous effects on this year's first quarter sales.
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However, the industry is steadily recovering,
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largely due to EV sales with Tesla accounting
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for a whopping 30%.
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With sales already improving in both March and April,
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the automaker could play a major role
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in reviving the country's auto sector.
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Despite adding competition to China's enormous EV market,
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Tesla could also have benefits
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for the country's domestic brands.
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Chinese companies like NIO and Xpeng
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that were once dubbed "Tesla-killers" are now struggling.
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While they are some of the most recognized
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electric car brands in China,
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they are virtually unheard of in the West.
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A well-known international brand like Tesla
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could help introduce the country's EV industry
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to global market competition, giving them exposure
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to buyers in America and Europe.
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There's also the environmental aspect.
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China, with a population of 1.4 billion
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and some of the world's most heavily polluted cities,
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is doing everything it can to prioritize EVs.
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For Chinese consumers, electric cars are cheaper
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to register and they're significantly more convenient.
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As of 2016, at least a dozen major Chinese cities
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have mandated even-odd policies.
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Under these conditions, traditional vehicles
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with license plates ending in an odd digit are allowed
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on roads on odd dates and those with an even digit
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on even dates.
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EV drivers can take their cars out on any day.
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Battery-powered vehicles make up 4.7
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By 2025, China aims for EVs to account for 25100:05:13,170 --> 00:05:14,960 of all cars sold,
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with Tesla potentially leading that charge.
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Yet China welcoming Tesla with open arms is a risky move,
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the country spent years and billions investing
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in domestic EV manufacturers
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and developing their own domestic market.
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Now they've shifted focus, investing in a foreign company
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on their soil.
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In the end, Tesla could provide huge benefits for China
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and open up the country's market on a global scale.
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But, we could just as easily see a less happy ending
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with Tesla running China's domestic companies
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out of business.
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Vice versa, Tesla could be overcome by the amount
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of local competition.
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Both Musk and China are taking a massive gamble
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and only time will tell how this relationship ends up.