Tesla’s operations in China are receiving renewed attention as CEO Elon Musk dispels rumors about a potential withdrawal ahead of a possible merger with SpaceX. Musk labeled The Wall Street Journal’s article as ‘absurdly fake news’ on X, stating that the notion of Tesla’s exit from China was never discussed. Newsweek has contacted SpaceX and Tesla for comments.
Importance of China to Tesla
The possibility of selling, closing, or spinning off Tesla’s China business carries significant consequences for both the company and its operations in one of its crucial markets. As the world’s second-largest economy, China is Tesla’s second-largest market. Tesla faces intense competition from Chinese electric vehicle manufacturers like BYD and XPeng, which grow rapidly by offering affordable models and quickly introducing new features.
During April to June, Tesla reported $4.7 billion in revenue from China, contributing approximately 17% to its total quarterly revenue. Over half of Tesla’s global vehicle deliveries last year originated from China.
Beyond Electric Vehicles
In late 2019, Tesla’s Shanghai factory became significant with the inauguration of Gigafactory Shanghai, the largest foreign-owned car manufacturing facility in China. This development enabled Tesla to tap into China’s advanced electric vehicle supply chains, leading to lower production costs, reduced shipping expenses, and bypassed import tariffs. Moreover, it positioned Shanghai as Tesla’s key export hub, serving Asia and Europe with cars manufactured there.
Tesla’s ambitions in China extend beyond electric vehicles. The company invested around 1.4 billion yuan (approximately $200 million) in the Shanghai Megafactory for producing Megapack grid-scale battery systems. These batteries facilitate electricity storage for later use, helping utilities manage demand fluctuations better, and enhancing Tesla’s business scope beyond electric vehicles.