China, Tesla Still In Talks On Non-JV Factory in Shanghai

     BEIJING (MNI) - The Chinese Commerce Ministry is still in talks with Tesla

on the carmaker's desire to build a fully self-owned factory in Shanghai without

a Chinese joint venture partner, which would be the first of its kind, Shanghai

Vice Mayor Zhou Bo told MNI on Thursday.

     Tesla is negotiating with the Shanghai municipal government to build a

factory in the Shanghai Free Trade Zone without partnering with a Chinese

company, as other foreign manufacturing firms are required to do. If approved,

such an arrangement would be the first, possibly indicating a new willingness by

the Chinese government to open up to foreign firms. 

     Zhou told MNI that any update on the Tesla case would be officially

released by the ministry, an indication that the central government is still

processing Tesla's application. Shanghai welcomes Chinese and foreign companies

to invest in Shanghai, especially companies in sectors that meet China's

national strategic goals, Zhou added.

     The Chinese government has been aggressively campaigning to expand its

electric vehicle (EV) market, with policies rolled out in September requiring

all automakers in China to manufacture EVs by 2019 if they also want to sell

gasoline cars. The campaign is a major part of the country's effort to rein in

pollution and reduce its reliance on petroleum imports.

     As an electric vehicle maker, Tesla received special consideration from the

Chinese government to open a plant because because of its ability to contribute

to the government's anti-pollution drive, which was outlined as a top policy

priority during the just-completed 19th Communist Party Congress, Liu Hong, an

economics professor at Capital University of Economics and Business in Beijing,

said in an interview with MNI.

     "It shows environmental protection has been included as an important factor

in China's economic development," Liu told MNI.

     He said China would also offer special consideration to other foreign

companies in sectors in which China aims to advance, such as high-tech.

     The possible shift to allowing foreign manufacturing firms to operate in

China without a Chinese partner indicates the Chinese government will reduce

protection for domestic companies in "infant industries" to force them to

compete with foreign companies on the same development level, Liu said.

     Liu predicted that Tesla has a 70% chance to be approved for the non-JV

deal.

     Tesla Chief Executive Officer Elon Musk said Wednesday that he expects the

company to set up the new factory in Shanghai in about three years, suggesting a

lengthy negotiation process may lay ahead.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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