In this segment from the Motley Fool Money radio show, Ron Gross and Simon Erickson explain what Tesla (TSLA +0.69%) may be looking to achieve with recent news that the company plans to build a factory in Shanghai. Tune in to learn more.
A full transcript follows the video.
This video was recorded on June 23, 2017.
Ron Gross: Simon, let's pivot over to Tesla for a minute --
Simon Erickson: Not Amazon-proof.
Gross: [laughs] They're in talks to build their first China-based factory in Shanghai. My question to you is: Is this move designed to lower costs, or is it an entrance into the Chinese market?
Erickson: It's probably an entrance into the Chinese market. Right now, Elon, you keep hearing how he wants to sell 500,000 cars a year.
Gross: Mr. Musk.
Erickson: Exactly. Mr. Musk, the CEO, the founder and CEO of Tesla. And half of the electric vehicles sold every year are in China. They're lower margin, they're not Tesla's today, but they're selling about 500,000 a year. So, Elon almost has to get a foothold into China if he wants to get there. They also have a lot of government funds that have gone into electric vehicle adoption. They built out over 80,000 charging stations across the country. They have subsidies for lithium ion battery producers and for electric vehicles, and things like this, so it's very favorable at the bigger picture. But there's also some complications with it, too. It's not going to be just cut and dry, easy for Tesla to go make a name for themselves in China. They're going to have to give something up. They're going to have to partner with somebody, they're going to have to give up IP. And I think that's going to be the question mark for Elon Musk going forward.
