Tesla’s Transformation to a Chinese Company

Perhaps in just a few years, Tesla may have transformed itself into a Chinese company, supplying all its worldwide demand (including U.S. and European demand) with its lower cost Shanghai production from Shanghai.

Tesla (Shanghai) Co., Ltd. (“Tesla Shanghai”) is the Chinese subsidiary Tesla (TSLA) formed to own and operate its production in and sales from the Shanghai factory. There are three key agreements between Tesla affiliates, the People’s Republic of China (“PRC”) or its agencies, and PRC-controlled banks. A “Grant Contract” under which Tesla Shanghai was granted the right to use the 214-acre factory site for 50 years. A revolving loan agreement providing Tesla Shanghai with working capital for its Shanghai operations (“Working Capital Loan Agreement”) and a term loan agreement providing funds for the Shanghai factory construction (the “Factory Loan Agreement”).

Reading these agreements as a whole, several things emerge. Most obviously, the agreements are enormously beneficial to Tesla. As some have said, China has given Tesla a “free factory.”

And, in a superficial sense, that’s true. The powers that be in the PRC (let’s call them the Chinese PTB) assembled a land grant and loan package that’s larger and more generous to Tesla than even the Fremont plant tax abatements from California, the Gigafactory subsidies from Nevada or the Riverbend expenditures from New York State.

And yet, of course, nothing is free. There’s always a price to pay.

Regardless of how independent or immune to political pressure Tesla’s CEO may regard himself, the simple fact is that the continued existence and success of the Tesla Shanghai enterprise depends on the continued approval by the Chinese PTB of what Musk says and does. As many journalists and scientists have recently been reminded, one must never ignore “special circumstances” or contravene “relevant standards.”

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