Electric-car maker Tesla (TSLA +3.93%) is finishing off 2019 with one last impressive milestone. The company will begin delivering its Shanghai-built Model 3 on Monday, Tesla reported today. It's difficult to underestimate what an impressive feat this is. It was just 11 months ago that Tesla started construction of its newest Gigafactory in China.
"Local manufacturing is an essential component of our ability to provide to customers in [China] a truly affordable version of Model 3," Tesla said in a letter to shareholders in January, a few weeks after construction of the factory started. It didn't take long for Tesla to follow through. With Shanghai-based Model 3 deliveries starting before 2019 ends, the automaker will benefit from a major catalyst throughout 2020.
Elon Musk at the groundbreaking event for Tesla's Gigafactory 3 in China. Image source: Tesla.
The China-made Model 3
Tesla first announced plans for its wholly owned Gigafactory 3 in Shanghai in July of last year. Since this announcement, the company's timeline has accelerated significantly.
When the factory was first announced, the automaker said it expected the first Model 3 vehicles to roll off the production line around mid-2021. But in Tesla's third-quarter update in 2018, management said it decided to accelerate its timeline in the market in order to make the Model 3 more affordable to its China customers. "We are aiming to bring portions of Model 3 production to China during 2019 and to progressively increase the level of localization through local sourcing and manufacturing," Tesla said about its accelerated plans.
In an October 2019 update, Tesla said it was ahead of its revised schedule, with full vehicles already being produced "on a trial basis, from body, to paint, and to general assembly, at Gigafactory Shanghai." The company only needed to secure the necessary government licenses and approval to begin manufacturing and sales in the market.
Now it seems Tesla has received the last stamp of approval, with the Model 3 being listed as an approved new energy vehicle that is exempt from purchase tax.
A key catalyst
China is an important market for Tesla. Revenue from the country accounted for 8% of 2018 revenue. But there's significant upside, particularly with a China-made Model 3 going on sale.
"China is by far the largest market for mid-sized premium sedans," Tesla explained in its most recent quarterly shareholder letter. "With Model 3 priced on par with gasoline powered mid-sized sedans (even before gas savings and other benefits), we believe China could become the biggest market for Model 3."
With the Model 3 now accounting for more than 80% of global Tesla deliveries, it is by far the automaker's most popular vehicle. A competitively priced version of the car in the China market, therefore, could be a major catalyst for Tesla in 2020 and beyond.
