Auto Suppliers Jump on Report Tesla to Fully Own China Plant

This article first appeared in Bloomberg News.

Auto-parts suppliers shares jumped in Asian trading after Wall Street Journal reported that Tesla Inc. reached an agreement with Shanghai’s government to build a fully owned manufacturing facility in the city’s free trade zone.

“As far as I know, there is no such agreement,” Guo Lei, an official at Shanghai’s Economy and Information Technology Commission who is in charge of new-energy vehicle projects, said in a phone interview Monday. In a statement, Palo Alto, California-based Tesla reiterated that it’s working with Shanghai’s government to explore local manufacturing.

Tesla signed a preliminary agreement with local authorities to produce cars in the city, a move that would help lower manufacturing and shipping costs, people familiar with the matter told Bloomberg News in June. Two of those people said they weren’t aware of any material change when they were contacted on Monday about the Wall Street Journal report.

Tesla’s production plans in the largest auto market are closely followed by industry watchers and investors as China accelerates electric-car development and works on a timeframe to phase out conventional-engine cars. People familiar with the matter last month told Bloomberg that Chinese authorities are considering a proposal to allow overseas carmakers to set up wholly owned EV factories in free-trade zones, a move that would give Tesla a greater range of options. Current rules require foreign automakers to have joint ventures with local companies for domestic production.

Ningbo Xusheng Auto Technology Co. led gains among suppliers, surging by the 10 percent daily limit in Shanghai trading Monday. Tianjin Motor Dies Co. rose as much as 7.3 percent in Shenzhen. Beijing Zhong Ke San Huan High-Tech Co. and metals supplier Dongguan Eontec Co. also rose, while Cheng Uei Precision Industry Co. advanced in Taipei.

Potential Sites

“We expect to more clearly define our plans for production in China by the end of the year,” Tesla said in a statement via WeChat. “We continue to evaluate potential manufacturing sites around the globe to serve the local markets. While we expect most of our production to remain in the U.S., we do need to establish local factories to ensure affordability for the markets they serve.”

Local production would make it easier for Tesla to access China’s auto-parts supply network and engineering talent pool at lower costs, accelerating sales growth and helping it compete with BYD Co. — China’s largest maker of electric cars — for market dominance, according to Bloomberg Intelligence.

China has identified new-energy vehicles as a strategic emerging industry and aims to boost annual sales of plug-in hybrids and fully electric cars 10-fold in the next decade. Last month, the government unveiled a set of emission rules, requiring almost all carmakers to manufacture zero- and low-emission vehicles starting in 2019.

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