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Tesla (TSLA) CEO Elon Musk visited China last week to attend the World Artificial Intelligence Conference. He also visited Tesla's Gigafactory in the country and was very impressed with the progress there. As reported by CNN, he said that the team in China had done a "mind-blowing" job. He added, "I've never seen anything built so fast in my life before, to be totally frank. And I've seen some crazy things … I really think China is the future. "
Tesla's impressive progress on the Gigafactory
Tesla's Chinese Gigafactory has gone from groundbreaking to trial assemblies in a matter of just eight months. The construction work at the factory started in January this year. Within just three days of applying, on August 19, Tesla received a comprehensive acceptance certificate from the Chinese government. On Tesla, Tesla Tesla Conducting Testimonials and Testimonials Tesla Conducting China-made Model 3. Then came the reports that Tesla would unveil its China-made Model 3 on August 29 at the Opening Ceremony of the Shanghai World Artificial Intelligence Conference. According to Inside EVs, Tesla actually showcased its first China-made Model 3 on August 29.
The pace of the progress at the Gigafactory has been impressive, surprisingly many analysts-even Musk. Many Tesla skeptics had completely ignored the Tesla's Gigafactory 3 in their estimates.
Gigafactory to help Tesla avoid tariffs
The Gigafactory has become a wild card for Tesla as trade tensions between the US and China escalate. Tesla had to increase in China due to Chinese yuan-related uncertainty. The Gigafactory will not only produce cost-effective Model 3s for the domestic market but will also help the company avoid large portions of the tariffs. Read Could Tesla's Gigafactory China Be Its Secret Weapon? for more information.
China: The largest market for Tesla outside the US
China is Tesla's largest market outside the US. In the first half of 2019, Tesla accounted for 13.5% of its total revenue. Moreover, its Chinese sales jumped 42% year-over-year, mainly due to the launch of its Model 3 in the country in February. Overall sales in the US have been downtrend since 2016. Therefore, automakers are looking for markets outside the US to maintain their top and bottom lines.
Tesla earns 10% exemption on purchase tax from China
The impressive progress of the China Gigafactory was the end of the surprises for Musk during his visit. On August 30, China announced that it would be made by Tesla from its 10% purchase tax. Citing China's Ministry of Industry and Technology Information, Reuters reported that the country would free 16 Tesla models from its purchase tax. Tesla's Model S, Model X, and Model 3 in the country.
According to CNN, 34 carmakers are on the exemption list. The list, however, is mainly used by Toyota and Daimler (DDAIF). Tesla is the only foreign automaker that has this exemption. Interestingly, this development came after Musk puts Chinese Minister of Transport Li Xiaopeng.
This exemption, China-made Model 3s, should help Tesla promote its goals in China. China's EV (electric vehicle) sales for the first time in July after the reduced subsidies on EVs. NIO (NIO), China's Tesla equivalent, China's policy shift, and company-specific issues. However, China is still one of the fastest-growing EV markets in the world.
Trump denied Tesla's exemption requests
In June, Tesla asked the US Trade Representative to exempt some Chinese-made computer components from the tariffs. President Donald Trump denied this request, according to Reuters. GM (GM) and Uber (UBER) also requested tariff relief and were denied. Tesla's requests were denied on the grounds that they concerned "a product strategically important or related to" Made in China 2025, "or other Chinese industrial programs."
As per Reuters, Tesla had previously argued that it would increase the economic impact of Tesla, through the increase of costs and impact to profitability.
China's latest move to give Tesla purchase tax exemptions that are thought to be reserved for domestic companies or joint ventures proves that it's ready to go to the extra mile to attract foreign investment. Tesla, on the other hand, is benefitting from China's efforts, and the country could make a significant contribution to its path toward sustainable profitability.
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