Tesla is seeking to raise $2 billion from Chinese lenders to build the Shanghai Gigafactory, according to JL Warren Capital, a New York-based investment research firm.
JL Warren wrote in a report last week that the expected money lenders for Tesla include Shanghai Pudong Development Bank, Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China, cited a CNBC report.
In an earnings call in January Elon Musk, the Tesla CEO discussed plans of expanding to China as the country is considered as an important market for the electric car maker.
“We need to bring the Shanghai factory online. I think that’s the biggest variable for getting to 500,000-plus a year. Our car is just very expensive going into China. We’ve got import duties, we’ve got transport costs, we’ve got higher costs of labor here,” explained Musk.
JL Warren cited in its report that the total loan amount would be about $2 billion, over 13 billion RMB, and about $500 million would go into setting up the first stage of the factory. Musk said in the fourth quarter earnings call that the company would need “something in the order of $0.5 billion in CapEx to get to the 3,000 vehicle rate in Shanghai.”
JL Warren said that the first stage loan will have an interest rate of 3.9%. This will help Tesla to begin its assembly line to manufacture its initial 250,000 lower-end Model 3 electric sedans.
Benefits for Tesla if they set up a factory in China are numerous. Automobile manufacturers in China are granted subsidies and incentives up to $60 billion since 2012. Therefore, setting up a local factory would allow Tesla to exploit these incentives. This will make its cars cheaper in China as well as around the globe.
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