Tesla Takes Step Toward Opening Factory in Shanghai

Trefor Moss

The Wall Street Journal

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Updated May 14, 2018 8:01 a.m. ET

Tesla Inc. TSLA 0.59% has moved closer to setting up its first overseas car plant by registering a company in Shanghai.

In a filing disclosed by China’s official business database Monday, Tesla’s Hong Kong division is identified as the sole owner of the new company—a crucial distinction that suggests that the electric-car maker plans to operate independently in China, without a joint-venture partner.

The filing said a new company called Tesla Shanghai Co. Ltd. was established in the Pudong New District of Shanghai on May 10. The filing said the company would be capitalized at 100 million yuan ($15.8 million).

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Palo Alto-based Tesla and the Shanghai municipal government didn’t immediately respond to requests for comment. In an earnings call with analysts May 2, Tesla chief executive Elon Musk said the company was close to announcing Shanghai factory plans.

Foreign auto makers build cars in China with domestic joint venture partners to avoid 25% tariffs on imported cars. But Tesla had been reluctant to take on a Chinese partner and jeopardize its proprietary technology.

The Wall Street Journal reported last year that Tesla had reached an agreement to establish a plant in Shanghai, with the company saying it would formally announce a deal by the end of last year.

But regulatory uncertainty appeared to hold up the agreement, with the Chinese authorities slow to confirm draft proposals allowing foreign car makers to operate wholly owned factories in Shanghai and other free trade zones.

Since then, China has come under increasing pressure from the U.S. to ease joint-venture requirements. An investigation by U.S. Trade Representative Robert Lighthizer concluded in March that China’s auto sector disadvantages foreign participants.

In response to U.S. pressure, Chinese President Xi Jinping pledged last month to lift joint-venture restrictions and slash import tariffs.

The lifting of the joint-venture rules opens the door to Tesla to open its own plant, though setting up a local supply chain without a Chinese partner could present challenges. Auto analysts say the factory will take roughly three years to build and commence production.

China is already a lucrative niche market for Tesla, which sells imported cars in affluent cities such as Beijing and Shanghai. But with the Chinese government heavily promoting electric vehicles, and targeting around seven million EV sales by 2025, local production could unlock much higher-volume sales for the Californian firm.

— Yang Jie contributed to this article.

Write to Trefor Moss at Trefor.Moss@wsj.com

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