Tesla’s Shanghai plant plans boosts Chinese auto parts suppliers’ profits

The Palo Alto, California-based company on Monday reiterated a statement from June that it’s working with the Shanghai government to explore local manufacturing. (Image Source: Bloomberg)

Stocks of auto-parts suppliers jumped in Asian trading after Wall Street Journal reported that Tesla Inc reached an agreement with Shanghai’s government to build a fully owned manufacturing facility in the city. Ningbo Xusheng Auto Technology Co led gains among suppliers, surging by the 10 percent daily limit in Shanghai trading Monday. Tianjin Motor Dies Co rose as much as 7.3 percent in Shenzhen. Beijing Zhong Ke San Huan High-Tech Co and metals supplier Dongguan Eontec Co also rose, while Cheng Uei Precision Industry Co advanced in Taipei.

The Palo Alto, California-based company on Monday reiterated a statement from June that it’s working with the Shanghai government to explore local manufacturing. Tesla had signed a preliminary agreement with local authorities to produce cars in the city, a move that would help lower manufacturing and shipping costs, people familiar with the matter told Bloomberg News at the time. Two of those people said they weren’t aware of any material change from June when they were contacted on Monday about the newspaper report.

The plans are part of a broader effort by China to accelerate electric-car development and establish a timeframe to phase out the production and sale of conventional-engine cars. Tesla has a greater range of options in China as authorities consider allowing overseas carmakers to set up wholly owned electric-vehicle factories in free-trade zones. Current rules require foreign automakers to have joint ventures with local companies for domestic production.

“We expect to more clearly define our plans for production in China by the end of the year,” Tesla said in a statement via WeChat. “We continue to evaluate potential manufacturing sites around the globe to serve the local markets. While we expect most of our production to remain in the US, we do need to establish local factories to ensure affordability for the markets they serve.”

Local production would make it easier for Tesla to access China’s auto-parts supply network and engineering talent pool at lower costs, accelerating sales growth and helping it compete with BYD Co – China’s largest maker of electric cars – for market dominance, according to Bloomberg Intelligence. China has identified new-energy vehicles as a strategic emerging industry and aims to boost annual sales of plug-in hybrids and fully electric cars 10-fold in the next decade.