Tesla said to target Shanghai as front-runner for production

[BEIJING] Shanghai has emerged as the front-runner to become the production base for Tesla Motors Inc in China in an investment that may be valued at about US$9 billion, according to a person with knowledge of the matter.

Jinqiao Group, a Shanghai government-owned company, has signed a non-binding memorandum of understanding with Tesla on building its production facilities in the municipality, said the person, who asked not to be identified because the negotiations are private. Each party may invest about 30 billion yuan (S$6.12 billion) in the partnership, with Jinqiao putting up land for most of its share, the person said.

Besides Shanghai, Suzhou and Hefei are among the cities that are actively seeking to win the investment from Tesla, the person said. At US$9 billion, the investment would be larger than Walt Disney Co's US$5.5 billion Shanghai theme park, which opened this month to fireworks and messages of support from Presidents Xi Jinping and Barack Obama.

Shanghai Jinqiao Export Processing Zone Development Co, a real-estate developer in the Jinqiao area, surged by the daily 10 per cent limit in Shanghai trading as of 9:34 am Tesla's shares closed 2 per cent at US$219.70 on Monday in US trading.

"This would be a major win for Tesla and Shanghai," said Steve Man, an auto analyst at Bloomberg Intelligence.

"The investment will probably include a nationwide dealership network, superchargers, R&D centre and potentially a second 'Gigafactory."'

Manufacturing in China would allow Palo Alto, California-based Tesla to avoid a 25 per cent import levy, making its electric vehicles more competitive against luxury-brand rivals, such as BMW and Audi, as well as local offerings by BYD Co and BAIC Motor Corp.

Besides its role as a financial centre and sea port, Shanghai is also one of the major auto manufacturing hubs in China and home to SAIC Motor Corp, which has joint ventures with General Motors Co and Volkswagen AG.

Foreign automakers that want to set up manufacturing plants in China have to do so through joint ventures in which they can own up to a 50 per cent stake. Different provinces and cities compete for the investments, which create jobs and spurs the local economy.

Ford Motor Co has partnered with Changan Group in the southwestern municipality of Chongqing, Hyundai Motor Co is working with BAIC Group in Beijing, while Nissan Motor Co's China venture is based in Wuhan in central Hubei province.

Khobi Brooklyn, a Tesla spokeswoman, said the company wouldn't comment on "rumor and speculation."

Calls to Jinqiao Group weren't answered, while the Shanghai Jinqiao Economic and Technological Development Zone, a government body overseeing the area, didn't respond to a faxed request for comment.

A spokeswoman for the Shanghai municipal government didn't confirm or deny the negotiations, saying checks with related parties didn't yield much clarity.

BLOOMBERG