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Insiders raise concerns as Tesla’s China factory gears up to start production

Tesla’s new $2bn factory in Shanghai, China, is on schedule to start production in October, but internal sources have suggested the factory may not meet its ambitious production targets

Tesla's new factory in Shanghai, China, is set to play a critical role in the company's plan to achieve an annualised production rate of 500,000 vehicles by the end of the year

Tesla insiders have raised concerns as to whether the electric carmaker’s China factory – which aims to start production this month – will be able to meet its year-on-year production targets, Reuters reported on October 2. Sources familiar with the matter cited uncertainties around orders, labour and suppliers.

The new factory in Shanghai will allow Tesla to cut shipping costs, avoid US tariffs and attract more Chinese customers. It is set to play a critical role in Tesla’s plan to achieve an annualised production rate of 500,000 vehicles by the end of the year.

But to achieve this, the factory will need to have produced at least 1,000 Model 3s per week by the close of 2019. Tesla is notorious for falling short of its output targets, and sources familiar with the matter warn that the new factory’s aims may not be achievable.

The new factory in Shanghai will allow Tesla to cut shipping costs, avoid US tariffs and attract more Chinese customers

“We aim to start some production in October, but the actual production volume depends on many factors, including [the] car orders we received, performance of newly hired workers, [the] supply chain and so on,” a Tesla source told Reuters. “It’s unclear when we can reach the 1,000-2,000 units per week target.”

The $2bn factory is Tesla’s first overseas car manufacturing site. Its launch comes shortly after monthly sales of new vehicles in China started declining for the first time in more than two years. Sales of new energy vehicles contracted in August for the second month in a row, leading the China Association of Automobile Manufacturers to slash its sales forecast for 2019 to 1.5 million vehicles, down from 1.6 million.

Nevertheless, Tesla still has reason to believe in the long-term success of its China strategy. In the first seven months of 2019, Tesla sales in China rose 98 percent, according to research firm LMC Automotive. Further, Tesla stands to profit from China’s increasing openness to foreign companies in the electric vehicle space, with the US carmaker already having benefitted from the state’s decision to exempt it from a 10 percent car purchase tax.