B1 Intermediate US 38 Folder Collection
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Narrator: Although Tesla is based in California,
China seems to be where it's found its biggest supporters.
In 2019, the company saw its China sales increase
by 161% from the previous year.
That's 40,000 newly registered Teslas.
Despite the recent pandemic that saw Chinese car sales
decline by 42% for the first quarter of 2020,
Tesla bounced back immediately with record-setting months
in March and April.
But Tesla's successful run in China hasn't come
without plenty of help from tax exemptions on sales
to billions of dollars in funding for the construction
of its Shanghai factory.
China and Tesla have formed an uncommon
and symbiotic relationship, but why?
First, we have to go back to how Tesla got there.
Since 2015, China has been the world's
largest electric car market.
As Tesla saw its China sales triple to $1 billion for 2016,
then reach $2 billion for 2017,
it became clear the EV builder had an audience there.
However, as other automakers had already found,
the US trade war with China was a major obstacle
to selling cars there.
With heavy taxes being slapped on Teslas imported to China,
an $80,000 Model S from the US was selling
for around $140,000 in China.
The only way to sell cars to Chinese consumers
on a larger scale would be to build them there.
But the cost of producing cars in China was not cheap.
Government policy forced foreign automakers
to work with a joint venture partner in China
and share half the profits.
However, in 2018 the country began rolling back
these restrictions.
Elon Musk was quick to take advantage and that July,
signed an agreement to build a wholly owned factory
in Shanghai.
With $1.6 billion in funding from Chinese banks
and record-fast approvals by the government,
Musk constructed Tesla's third gigafactory.
By August 2019, the plant was already building vehicles.
The factory is currently making 3,000 cars a week
or around 150,000 a year.
By the end of 2021, when the factory is fully operational,
Musk plans for it to be churning out 500,000 cars annually.
And with China now exempting Model 3s from a 10% sales tax,
there's no telling how many the EV giant stands to sell.
So why has Tesla received such a warm welcome from China?
To start, there's the incredible amount of money
China stands to make off the factory alone.
The Shanghai facility was financed almost entirely
through state-controlled banks
who can expect a pretty big return on their investment,
plus, Tesla purchased a 50-year lease of the land,
which is money that goes directly to the government.
Additionally, 30% of the factory's parts
are purchased locally.
Musk says by the end of 2020,
he plans for that to reach 100%.
On a wider scale though, Tesla could be the boost
China's declining car market needs.
In 2019, total car sales in China fell by 8%,
after falling 3% in 2018.
More recently, factory closures due to COVID-19
had disastrous effects on this year's first quarter sales.
However, the industry is steadily recovering,
largely due to EV sales with Tesla accounting
for a whopping 30%.
With sales already improving in both March and April,
the automaker could play a major role
in reviving the country's auto sector.
Despite adding competition to China's enormous EV market,
Tesla could also have benefits
for the country's domestic brands.
Chinese companies like NIO and Xpeng
that were once dubbed "Tesla-killers" are now struggling.
While they are some of the most recognized
electric car brands in China,
they are virtually unheard of in the West.
A well-known international brand like Tesla
could help introduce the country's EV industry
to global market competition, giving them exposure
to buyers in America and Europe.
There's also the environmental aspect.
China, with a population of 1.4 billion
and some of the world's most heavily polluted cities,
is doing everything it can to prioritize EVs.
For Chinese consumers, electric cars are cheaper
to register and they're significantly more convenient.
As of 2016, at least a dozen major Chinese cities
have mandated even-odd policies.
Under these conditions, traditional vehicles
with license plates ending in an odd digit are allowed
on roads on odd dates and those with an even digit
on even dates.
EV drivers can take their cars out on any day.
Battery-powered vehicles make up 4.7
By 2025, China aims for EVs to account for 25100:05:13,170 --> 00:05:14,960 of all cars sold,
with Tesla potentially leading that charge.
Yet China welcoming Tesla with open arms is a risky move,
the country spent years and billions investing
in domestic EV manufacturers
and developing their own domestic market.
Now they've shifted focus, investing in a foreign company
on their soil.
In the end, Tesla could provide huge benefits for China
and open up the country's market on a global scale.
But, we could just as easily see a less happy ending
with Tesla running China's domestic companies
out of business.
Vice versa, Tesla could be overcome by the amount
of local competition.
Both Musk and China are taking a massive gamble
and only time will tell how this relationship ends up.
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Why China Loves Tesla

38 Folder Collection
Mackenzie published on May 20, 2020
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