Investors are questioning Tesla CEO Elon Musk regarding his plans to build a new production plant based in China which, according to recent reports, could cost the company a massive USD$5 billion in the capital. Tesla is currently low on funds, where could it possibly get the projected amount to fund the project?
On Wednesday, Tesla reported a huge increase of its profit loss from last year's USD$401.4 million to USD$742.7 million in Q2 of 2018. Much of this dent is attributed to the company's current spending spree to speed up the production of its upcoming Tesla Model 3 sedan.
The firm, however, assures its partners that the revenue figures will definitely return to positive as it seeks to improve its profitability while cutting operational costs. Musk, in an earnings call this week, said that Tesla will be able to get back on its feet by the third quarter of this year.
Speaking of cutting costs, one of the solutions being looked into by the company is to build a Gigafactory in Shanghai, China.
The Asian powerhouse is Tesla's second-largest market for its electric cars. However, the profit rates dwindled at the onset of the China-US tariff war.
The Californian EV-maker is among the companies who suffered the brunt of the conflict. In a retaliatory move to Trump's levies on Chinese exports, Beijing slapped its own duty rate of 25 percent additional tax on US-made cars imported to the country. This situation makes it hard for Tesla to cycle back on its operational cost, while at the same time, losing huge in its projected profit margin.
With the new manufacturing plant in China, Tesla foresees an increased production output of its new Model 3 by the year 2020. Preliminary estimates gave the factory a capacity to make 500,000 non-fossil fuel running automobiles at a yearly basis.
But Tesla has yet to find the money first before this plan comes to fruition.
Musk had earlier said that the company won't necessarily be selling stocks in order to raise the fund. Instead, Tesla will tap with local partners in China, a report from Bloomberg said.
Citing an unnamed source, the news outlet seems to hint that the matter is yet to be confirmed by Tesla. However, Musk's decision to work with local financing entities is a perfect timing as the car industry faces yet another threat from the trade conflict.
As stated in this report, Musk had already met with the local government officials in Shanghai as well as with "senior leaders" in the country regarding the massive project.
