The proposed Gigafactory 3 of Tesla (NASDAQ:TSLA) in Shanghai will be the single biggest factor in the long-term success of Tesla. It’s integral to the success of the company. It’s needed for both macro political reasons and on a micro company level. As Elon Musk stated last week, the factory is “fundamental to the future of Tesla.” Tesla skeptics seem to have misunderstood the extent of Chinese backing for this project. China sees Tesla as an integral part of its future new energy picture.
The Big Picture
Tesla has been caught between a rock and a hard place for geopolitical reasons. The Trump Administration’s hostile approach to trade with China and to Chinese companies has hit them, and many others, hard. U.S. manufacturers’ import costs have been increased unnecessarily by tariffs. U.S. exporters have seen their prices increased unnecessarily by tariffs.
Tesla shares this fate similarly with many others, especially Apple (NASDAQ:AAPL). Other companies reporting recently from very different industries have had the same problem. Examples include Nvidia (NASDAQ:NVDA) and Caterpillar (NYSE:CAT). So the Trump Administration’s policies make it essential that such companies manufacture more products in Asia.
On a micro basis, China is the world’s largest EV market and its pole position will only increase in coming years. Apart from manufacturing EVs, the Chinese plant in Shanghai will open up tremendous opportunities for Tesla in the rapidly-growing energy storage market and in battery development. I detailed these opportunities in a recent article. China is the dominant battery manufacturer in the world.
The Shanghai Factory
Tesla cynics launched a huge PR campaign to say the factory would never be built. Once again they were 100% wrong.