China Allowing Foreign Carmakers Like Tesla To Set Up Their Own Factories

China will be allowing foreign automakers like Tesla to build vehicles without having to partner with local companies.

Under new rules, foreign automakers would be allowed to establish their own wholly owned electric vehicle company in China’s free-trade zones, according to auto executives briefed on the matter. That would be a major shift for a country that allowed global automakers to set up factories locally through establishing joint ventures with Chinese companies beginning in 1994.

China will “actively implement the opening up of the new-energy manufacturing sector to foreigners, together with other departments under the direction of the State Council,” the nation’s Ministry of Commerce said in an emailed response to Bloomberg.

The statement also made reference an agency notice issued last month by the State Council. Government agencies have been directed to expand access to foreign investors including “new energy vehicle” manufacturing.

The move started last year in July with allowances made to foreign manufacturers to set up their own motorcycle and battery factories.

The 50-50 rule had been established in the 1990s to tap into the financial backing and expertise of global automakers as Chinese startups struggled to break through cost-intensive procedures needed to design, build, market, and deliver vehicles to retail networks. Much of that came through tapping into technology from foreign carmakers and rebadging cars as Chinese JV makes and models.

Tesla CEO Elon Musk has been spending a lot of time in China in the past couple of years as the company opened up retail stores and a Supercharger network.

In June, Musk said Tesla has been working with government officials in Shanghai to examine options in setting up local production for the EV maker. Shanghai has one of the 11 free-trade zones, with others located in the provinces of Fujian, Guangdong, and Zhejiang.

In April, Musk met with vice premier Wang Yang to explore possibilities. The meeting with Wang, who used to head the Guangdong province, led to speculation that Tesla could set up a factory in that area.

Foreign carmakers like Tesla have to add a steep 25-percent tariff to their sticker prices, making the electric cars much less competitive with Chinese car shoppers. That would be an even tougher challenge as the more affordable Tesla Model 3 comes to China.

China can’t be ignored as a vital growth market for selling new energy vehicles, which include battery electric and plug-in hybrid electric vehicles.

While NEV credits are starting to diminish, the national government has released statements this year indicating that EV mandates will be following California’s zero emission vehicle policy. Earlier this month, China announced that it would be joining Norway, France, and the United Kingdom in banning fossil-fuel powered vehicles in the near future.

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The Chinese government is working with its regulators on setting a deadline on ending production and sales of vehicles with internal-combustion engines, according to Xin Guobin, the vice minister of industry and information technology.

Global makers are making moves to set up EV-specific automaker units with Chinese JV partners. Ford is considering setting up a JV to produce EVs in China with Anhui Zotye Automobile Co. Volkswagen has partnered with Anhui Jianghuai Automobile Group Corp. to do the same.

GM’s joint venture with SAIC Motor, SAIC-GM, will be opening a new battery assembly plant in Shanghai before the end of the year.

Bloomberg


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