Tesla's new Shanghai Gigafactory was completed in just 10 months, and is now ready for production,. Credit: evannex.com.

The Shanghai-built Tesla Model 3, which starts at 355,800 yuan (US$50,398) and is set to be available for large-scale delivery in the first quarter of 2020, is being touted as the car that will reshape China’s new energy car market, a report by Beijing Daily reported.

But will it? Since the government cut car subsidies, the market has plunged.

“China is by far the largest market for mid-sized premium sedans,” Tesla said in its quarterly financial statement recently, adding, “with Model 3 priced on par with gasoline powered mid-sized sedans, we believe China could become the biggest market for Model 3.”

According to Tesla’s third-quarter earnings report, it produced 96,155 electric vehicles during the period, and delivered a record-high 97,000 units.

On the other hand, China’s new energy vehicles sector has seen plunge of sales for four consecutive months since the government cut subsidies in June, according to data from the China Association of Automobile Manufacturers.

Total production and sales of new energy cars in October reached 95,000 units and 75,000 units respectively, down 35.4%and 45.6%, year-on-year, CAAM data showed.

In the past four months, sales of new energy vehicles remained between 70,000 to 80,000 units, meaning extra sales have to surpass 300,000 units by the end of this year if the NEV market wants to meet last year’s overall sales record, Beijing Daily reported.

The picture also looks gloomy for domestic NEV companies. In October, Chinese car maker BYD sold 12,600 new energy vehicles, down 55% year-on-year, of which pure electric passenger car sales fell 41.5% to 7,588 units. For BJEV, sales in October registered at 8,601 units, a plummet of 69.2% year-on-year.

Even so, Tesla, which relied on imports to China before its Shanghai plant, was not affected much by the subsidy cuts, the newspaper reported.

Its new Shanghai Gigafactory was completed in just 10 months, and is now ready for production, which can help reduce costs by approximately 65% compared with the Model 3 production line in the US. It can also contribute a higher gross margin for the Model 3, according to the company’s CEO Elon Musk.

A higher-than-expected pricing of the Shanghai-built Model 3 will also win Tesla initiative in market competition after China’s NEV subsidy policies are reshaped next year, analysts said in the report.

According to CNBC, the factory is expected to reduce labor costs to as low as one-tenth what the electric car manufacturer currently pays in wages at its California factory, which Tesla says employs more than 10,000 workers.

With such a reduction in costs, Tesla could sell its vehicles at a profit margin in the low- to mid-30% range, comparable to that of luxury auto manufacturer Porsche, according to research from Morgan Stanley.

“While most investors we speak with expect China to be a success for Tesla from a demand point of view, we have found that the part of the story that is still, in our opinion, widely under-appreciated is just how profitable Tesla cars in China could be in a localized, mass scale, lower cost structure environment,” Morgan Stanley analysts wrote.

Meanwhile, Musk has also chosen Berlin as Tesla’s next gigafactory outside the US where the company is planning to invest 4 billion euros (US$4.4 billion) and produce 150,000 cars a year, The Pioneer reported.

The Berlin unit will manufacture SUV Model Y, which could go into production by 2021. The unit could initially employ 3,000 people, but could rise to 7,000.

“Everyone knows that German engineering is outstanding and that’s part of the reason we’re locating our gigafactory Europe in Germany,” Musk said last week.

Additionally, Musk recently announced that he would unveil the Tesla electric pickup truck dubbed the “Cybertruck” on Nov. 21 at an event in Los Angeles.

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