Tesla China’s goal to increase Gigafactory Shanghai’s production capacity by 450,000 units hit a snag recently.
Tesla has plans to develop 172 acres of former farmland surrounding Giga Shanghai to increase its electric vehicle production up to 450,000 annually in China. As of this writing, the 172 acres are overgrown with wildflowers. However, local authorities are concerned about overcapacity as the EV price war continues.
Tesla launched a price war in the auto market early in the year after significantly decreasing the starting price of the Model Y and Model 3. Some EV automakers followed Tesla’s lead and reduced their price tags, including Volkswagen AG and Mercedes-Benz Group AG.
Volkswagen AG, Mercedez-Benz Group AG, and Ford reduced their starting prices in China. The European automakers each offered discounts up to RMB 70,000, while the American car maker reduced the starting price of the all-electric Mustang Mach-E to around RMB 209,900. The price war led to domestic car makers like Xpeng Inc. and Nio Inc. lowering their prices.
In March 2023, analysts noted that some of China’s smaller electric vehicle manufacturers might not survive the Tesla-incited price war, leading to the issue today over Giga Shanghai’s expansion.
China’s National Development and Reform Commission (NDRC) are concerned about overcapacity making them cautious about approving new EV production plans, such as Tesla Giga Shanghai’s expansion.
Reuters shared that Bill Russo—CEO of Automobility based in Shanghai—estimated China has an excess auto production capacity of about 10 million vehicles annually.
“You could argue that as Tesla, I’ve got new products; I need to have a new factory to build them in. But viewed from the China government’s point of view, all they see is a market that’s oversupplied,” Russo stated.