Best stock to invest in – Tesla Considering Shanghai For New China Plant

Best stock to invest in

Doug Young 

Bottom line: Tesla will announce a joint
venture production facility in Shanghai within the next 1-2
months, and could see its China sales pick up sharply after its
more affordable Model 3 reaches the market next year.

Just a week after Disney (NYSE: DIS) launched
its newest theme park in Shanghai, media are saying that new
energy car superstar Tesla (Nasdaq: TSLA)
is also eyeing China’s commercial capital as the location for a
new production base costing up to $9 billion. We should note from
the start that the potential partner mentioned in the reports, the
Shanghai government-owned Jinqiao Group, has
denied the signing of a memorandum of understanding (MOU) for such
a deal. But in this case I trust the source of the story,
Bloomberg, more than the Chinese officials who have a track record
of denying reports that later turn out to be true.

This particular investment plan has been in the headlines for
much of this year, though Tesla has been quick to always say that
it will only make such an investment if it can find the right
partner and market conditions justify such a move. A major
breakthrough appeared to be near last month, when a senior Tesla
executive met with a high government official in charge of the new
energy car sector and the pair later released photos of their
meeting. (previous post)

All that said, let’s review the latest developments that include
both details of the potential plan and also Jinqiao Group’s
denial. According to the Bloomberg report, Tesla has signed an MOU
to build a manufacturing plant in Shanghai’s Pudong New District,
making the city the front-runner to host the long-discussed
production base. (English article; Chinese article)

Under the plan, Tesla would provide half of the investment for
the plant, or up to 30 billion yuan ($4.5 billion) of the total
cost of around $9 billion. Jinqiao Group would provide the other
half. Other places that are still vying for the plant include the
interior city of Hefei in Anhui province, and the city of Suzhou
about an hour’s drive from Shanghai.

The Bloomberg report cites a representative of one of Jinqiao’s
listed units saying that the parent company hasn’t signed any MOU
or other documents about a Tesla joint venture factory. (English article; Chinese article) The fact that Bloomberg
decided to run its article despite the denial leads me to believe
that a deal is really happening in Shanghai, though perhaps
there’s no actual signed MOU just yet.

Aggressive Suitor

The fact of the matter is that Shanghai is quite aggressive when
it comes to courting cutting-edge famous brands like Tesla. The
city just opened its state-of-the-art Disneyland last week, and
the latest reports are pointing out that the reported new Tesla
factory would be worth nearly twice as much as the $5.5 billion
price tag for the Disney resort.

Shanghai has also been working aggressively to build up a
charging infrastructure for electric vehicles (EVs), in a bid to
jump-start Beijing’s stalled program to promote the industry. That
program includes not only building charging stations throughout
the city, but also working aggressively to get residential
property management companies to permit apartment dwellers to
install such stations in their parking spaces at home.

Tesla zoomed into China 2 years ago on a flood of positive
publicity, fueled by Beijing’s emphasis on the technology and also
the celebrity power of company founder Elon Musk. But it stumbled
badly after that due to lack of infrastructure, poor marketing and
also problems with China’s broader incentive program to promote
the sector.

This latest move to localize production, combined with Tesla’s
recent introduction of a more affordable model priced at $35,000,
seem to indicate the company may be regaining some of the momentum
it lost after its fast start 2 years ago. Accordingly, I expect we
could see a formal announcement of the new joint venture in the
next month or two, and the company’s China sales could pick up
sharply when the new more affordable Model 3 becomes available
here next year.

Doug Young has lived and worked in China for 20 years, much of
that as a journalist, writing about publicly listed Chinese
companies. He currently lives in Shanghai where, in addition to
his role as editor of Young’s China Business Blog, he teaches
financial journalism at Fudan University, one of China’s top
journalism programs.. He writes daily on his blog,
China Business Blog
, commenting on the latest
developments at Chinese companies listed in the US, China and Hong
Kong. He is also author of a new book about the media in China,
Party Line: How The Media Dictates Public Opinion in Modern China

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