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Tesla looks to make its China operation as nimble as its cars

Electric vehicle maker fires up new plant built in less than a year

Tesla CEO Elon Musk dances with delight at an event to commemorate the start of operations at its Gigafactory in Shanghai in January.   © Reuters

PALO ALTO, U.S./TOKYO -- Tesla Motors, the world's biggest manufacturer of electric vehicles, has continued to grow as CEO Elon Musk's pushes ahead aggressively in China, the top market for EVs.

In early January, Tesla began delivering its mainline Model 3 to customers from a new "gigafactory" in Shanghai. At an event to mark the first delievery from the plant, Musk said the U.S. company had made faster progress than expected in China. He celebrated by showing off some dance moves.

The Shanghai factory is Tesla's second assembly plant and its first outside the U.S. The plant, which was completed at the end of 2019, was built in less than a year, surprising industry insiders and analysts. "Two years are normally needed" to begin operating a new auto plant, said Tang Jin, head of Mizuho Bank's international business relations department.

Tesla's nimble, no-frills management style helps explain how the Shanghai gigafactory got up and running so quickly. Unlike its first plant, which was built on the site of a defunct joint venture between Toyota Motor and General Motors in Freemont, California, the Shanghai factory was designed from scratch. The new plant has a simple structure, including a dead-straight assembly line that incorporates all the steps required to build Tesla cars.

The Shanghai factory "looks cheaply built as a whole, if compared to other automakers' plants," said an executive at a Tesla parts supplier.

Tesla began rolling cars off the line at its Shanghai factory less than a year after construction started on the plant.   © Reuters

In addition to overseeing construction of the factory, Tesla installed stamping and welding machines, an assembly line and other equipment itself to speed things up. The fact that EVs need fewer parts and do not require complex engine assembly further expedited the plant's completion.

Tesla's strong ties with the Chinese government have also helped. Premier Li Keqiang met Musk soon after construction began, assuring him that China would issue him a residence permit, demonstrating Beijing's willingness to make life easy for the company. Musk said he had never expected the formalities to be completed so quickly.

Tesla has invested an estimated $2 billion in the Shanghai gigafactory, which plans to raise its annual production capacity to 200,000 vehicles in the future. Tesla can now build new plants much faster than before, at lower cost, said Jerome Guillen, head of the company's automotive division.

With Chinese government subsidies helping to defray its costs, Tesla's total investment in the factory is estimated to be just one-third what it spent on the Fremont plant, Tang said.

Tesla was founded in 2003, first releasing the Model S luxury sedan. In 2017, it rolled out the smaller, mass-market Model 3.

Headquartered in Palo Alto, California, Tesla incurred a net loss of $862 million on sales of $25 billion in the business year ended December 2019. It sold 367,500 EVs that year, capturing a 22.3% share of the global market, according to LMC Automotive, a British automotive industry analyst.

Thanks to its strong brand loyalty, Tesla has seen its market capitalization surpass that of Toyota. Its share price has risen sixfold over the past year.

Tesla took some 15 years to reach total sales of 500,000 vehicles, but only 15 months to double that. In addition to the Shanghai gigafactory, the company is building new plants in Germany and the U.S.

Tesla plans to boost its global capacity by 40% to 1 million vehicles annually by 2021, aiming to join the ranks of mass-market automakers.

According to Tokyo-based research specialist MarkLines, Tesla sold some 31,000 vehicles in China in the April to June quarter, tripling the figure from the same period last year. But the U.S. market continues to account for more than half the company's unit sales.

To maintain its rapid growth, Tesla must grab a big slice of the EV market in China, which is expected to keep growing, along with Europe's, as environmental regulations grow stricter.

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