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Reports suggest Tesla may be planning to set up shop in China

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Tesla could be going to China.

In one of the most promising moves for the car company and it seeks to expand globally, new reports suggest that Tesla is working alongside the Chinese government in Shanghai to explore local manufacturing. This would allow Elon Musk’s car firm to decrease manufacturing, labor, and shipping costs, and hopefully, help the firm achieve a profit (something it has yet to do).

According to an emailed statement to Bloomberg, Musk hopes to have more clearly defined plans by the end of 2017. The majority of production will still happen in the U.S., but Tesla readily admits that it must begin looking toward local factories “to ensure affordability for the markets (it) serves.”

This is of particular importance in China, a key market for almost all companies today, as overseas customers are eager to get their hands on Musk’s cars. However, given that both Tesla Model S and Model X cars are currently subject to a 25-percent import tariff, they’re significantly more expensive in China than they are in the U.S. today.

“The entrance of Tesla into local production is a necessary step for Tesla to gain relevance in the world’s largest EV market,” said Bill Russo, managing director of Gao Feng Advisory Co. and a former head of Fiat Chrysler Automobiles NV’s Chrysler unit in China. “Tesla’s participation thus far has been limited to imported Model S and Model X cars. However, unlocking the mass market will require a price point that is only achievable with a locally produced Model 3.”

It’s unclear as of yet exactly which Tesla cars (or parts) would be locally manufactured in China, but the country has indeed demonstrated a commitment to more energy efficient automobiles. In fact, even with the high tariffs in China, Bloomberg reports that 15 percent of Tesla’s $7 billion revenue last year came from buyers in China.

“It’s just at the right moment for Tesla to localize production because China now has suppliers with world-leading technology,” said Fu Yuwu, president of the government-backed Society of Automotive Engineers of China. “Tesla will also need to develop customized mass-market products for the Chinese market, which is unique from the rest of the world.”

It has yet to be determined which Chinese companies Tesla may bring on as partners, but we’ll update you as we learn more.

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