Tesla might have just won a victory in China -- but it will be expensive

Hollis Johnson/Business InsiderThe Model 3 could be made in China.

  • China is easing a decades-old rule governing auto manufacturing by foreign companies in the country and Tesla could benefit in a big way.
  • Electric carmakers will see the rule changed this year.
  • That move benefits Tesla, but the company still has to find the money to invest in a new factory.

Since the 1990s, China has required foreign automakers to engage in joint-ventures with Chinese companies in order to sell US-badged vehicles in the Middle Kingdom.

No JV and you pay a 25% import tax. The most prominent, JV-less US automaker that has to pay the tax is Tesla, which has a single assembly plant in California.

China is a big growth market, so this Wall Street Journal report is good news for Tesla: the JV rules will be phased out completely by 2022, and for electric-car manufacturers this year.

“Tesla, which has been struggling to complete a deal to open a plant in China, could be the chief foreign beneficiary of the changes announced Tuesday, if indeed they clear the way for the electric-car maker to open a wholly owned company here,” the WSJ’s Trefor Moss wrote.

Actually, it’s sort of good news for Tesla. If the carmaker now wants to do local automaking in China, it will have to absorb most or all the cost of building a plant. That could mean billions, with manufacturing not coming online for several years at the earliest.

Meanwhile, the established JV partners, such as Volkswagen and General Motors, can either stick with the cost- and tech-sharing model that’s long existed, or go ahead and set up their own factories. GM, for example, sold more vehicles in China than in the US last year and made $US2 billion in the country.

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