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December 27, 2019 5:30 PM, EST

Tesla Set to Deliver First China-Built Car in Milestone for Musk

An aerial view of the Tesla factory on the outskirts of Shanghai on Nov. 1, 2019. (Qilai Shen/Bloomberg News)

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Tesla Inc. will start delivering China-built cars Dec. 30, a major milestone for Elon Musk’s company as it expands in the world’s largest electric-vehicle market.

The first 15 units of Model 3 sedans assembled at Tesla’s new multibillion-dollar Shanghai plant — its first outside the U.S. — will be delivered to company employees Dec. 30, capping several months of wins for Musk. The latest came Dec. 27, when the locally built car was included on a list of vehicles qualifying for an exemption from a 10% purchase tax in China.

Tesla CEO Elon Musk

Musk

The shares closed with little change at $430.38. The stock has surged since the carmaker reported a surprise profit Oct. 23 and is now more than double its year low of $178.93 in June.

Chief Executive Officer Musk is counting on the China plant to help build on recent momentum for the company in the world’s largest market both for EVs and autos in general. The Model 3 will compete with electric cars from local contenders such as NIO Inc. and Xpeng Motors, as well as global manufacturers including BMW AG and Daimler AG.

The Shanghai Gigafactory broke ground at the start of this year. Originally just a muddy plot about a 90-minute drive away from Shanghai’s city center, it is now a crucial test of Musk’s bid to keep his carmaker profitable as he bets big on Chinese appetite for electric cars.

With Tesla’s volatile stock price and strained finances, investors will be watching closely how the ramp-up unfolds. The multibillion-dollar investment will be a deciding factor to determine whether Tesla will be able to take on local competitors and fend off challenges by the likes of Mercedes-Benz, BMW and Audi.

Tesla graph

Junheng Li, an analyst at JL Warren in New York, noted that the made-in-China Model 3s are not fully manufactured there yet. Tesla is importing parts and assembling them at the facility near Shanghai, with production localization expected later in 2020.

“Localization of suppliers has been very slow,” Li said in an email. Tesla didn’t immediately respond to an inquiry seeking comment.

Although Musk has said he’s never seen a factory built so quickly, the first delivery will come only a day before the end of 2019. Back in April, the CEO predicted Tesla would make at least 1,000 cars a week in Shanghai by the end of the year — a volume the company’s original factory in California spent months trying to hit. He’s also said a weekly rate of 3,000 is a target at some point.

Tesla said in October the locally built Model 3 will be priced from about $50,000. On top of the tax exemption, the China-built model this month qualified for a government subsidy of as much as about 25,000 yuan ($3,600) per vehicle.

The company may lower the price of the locally assembled sedans by 20% or more next year as it starts using more local components and reduces costs, people familiar with the matter have said.

The launch also will provide clues about Tesla’s ability to truly go global. The company is planning to follow up with a production facility in Europe.

Dana Hull contributed to this report.

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