Market Overview

Tesla Makes Progress On China Gigafactory, Seeks Contractor Bids

Tesla Makes Progress On China Gigafactory, Seeks Contractor Bids

Tesla Inc (NASDAQ: TSLA) will begin production of its China Gigafactory 3 in the second half of 2019, according to a Reuters report.

What Happened

The Shanghai mayor has urged Tesla to hasten construction on the 200-acre site, and his office assured that ground preparation was nearly complete.

The automaker has opened the contractor bidding process for the $2 billion project. State-owned Shanghai Construction Group is preparing a proposal, and China Minmetals Corp has already purchased concrete pipe piles and steel pile tips for the site foundations.

Why It’s Important

Tesla has revealed little information on the timeline for the new factory, whose positioning is key to certain analyst theses.

The Gigafactory is expected to give the automaker a significant advantage in the world’s largest auto market. Tesla would operate the nation’s first wholly foreign-owned auto plant and, with a localized supply chain, could then circumvent high import tariffs and trade barriers. The positioning is expected to improve Chinese affordability of Model 3s and bolster margins in the region.

Its success would be particularly meaningful as competitors Ford Motor Company (NYSE: F) and General Motors Company (NYSE: GM) suffer continued declines in the market.

What’s Next

Some analysts speculate the Tesla will need to raise funds for the new factory. Whether it has plans to do so is yet unknown.

Shares of Tesla were trading down about 1.2 percent at $355.37 shortly after Thursday's opening ell.

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