Elon Musk announced in an earnings call on Aug. 1 that he will not be selling stock to raise cash to fund the construction of the Tesla gigafactory in China. He said funding would likely come through a loan from a local bank or Chinese partners.
Musk also surprised investors when he pegged the factory in China at only $2 billion, which is less than half the budget he spent for his first factory in the United States. Before his announcement, analysts had also estimated the upcoming factory to reach as much as $5 billion.
The company's CEO said he is confident that the Tesla gigafactory in China is going to be built for a lot less. He said the building of Tesla's first factories in the United States thought him a valuable lesson. This time with China, he knows how to do the work more efficiently.
Tesla is looking forward to finally being operational in China as the market is expected to boost up the company's sales. The Shanghai factory will make it possible for Tesla to build hundreds of thousands of cars yearly.
Some analysts, however, were lukewarm about Musk's announcement, doubting that he can build the Tesla China gigafactory as less than half the cost of his previous spending.
"I think it would be more than $2 billion if we're baking in delays," said Tu Le, head of Beijing-based research firm Sino Auto Insights as quoted by CNN Money.
There may also be challenges in getting approvals from the Chinese government.
"Unless it suddenly figures out how to build at volume quickly in California, it is hard to imagine it won't endure the same challenges in China," said Michelle Krebs, an analyst at consultant Cox Automotive.
Furthermore, Musk has yet to consider the impact of the ongoing US-China trade war with his plans for building Tesla's factory in China. The country has imposed a 25 percent tariffs on imports of US-made cars in response to President Donald Trump's levies on $34 billion of Chinese goods. More recently, there had been talks that the US president is planning to impose another 25 percent tariffs on as much as $200 billion of Chinese goods.
China, in general, is the world's largest market for electric cars. The country is the second-largest market for Tesla, not too far behind from the United States.
Musk is reportedly aiming to start manufacture of Tesla Model 3 in the upcoming gigafactory in China by 2020, Bloomberg reported citing unnamed sources. The potential market will help increase the company's profits especially that it is burning cash to hasten the Tesla Model 3 productions in other markets. More so, the company posted a quarterly loss of $742.7 million from $401.4 million in the same period a year earlier.
In July, Tesla announced that it has already secured a deal about building Tesla Gigafactory 3 in Shanghai. Once completed, Musk can make an additional 500,000 vehicles yearly for Chinese customers alone.
