Tesla plans another mega factory in Shanghai amidst worsening US-China tension

• Tesla announced plans to build a mega factory in Shanghai, this time to produce its Megapack energy storage system.
• Construction of the plant was planned for the third quarter of this year, with production scheduled to begin in the second quarter of 2024.
• The factory is expected to produce about 10,000 Megapack units annually — equivalent to 40-gigawatt hours of energy storage.

It was 2017 when Tesla first entered the Chinese market, signing an agreement with the Shanghai government to take the 854,885 square meters of the 05 land in Shanghai as its Gigafactory 3. By December 2019, the US-based company delivered its first cars made in China, marking a significant milestone for the electric vehicle (EV) maker.

Some four years later, Tesla’s share of the total EV market in China, including battery-electric vehicles and plug-in hybrids, is at about 10%, compared with 7% in 2022. As of February this year, the EV giant’s first factory in Shanghai produced almost 90,000 units in February, according to the China Passenger Car Association, and can turn out about 1.1 million units annually.

In short, amidst the US’s rampant effort to bring back manufacturing to the US, with an increasing number of American companies moving production out of China, Tesla is deepening its ties with the Eastern powerhouse as its car business struggles to fend off growing competition from Chinese rivals.

Tesla announced on Sunday that it is building its second factory in China, this time a mega factory, to produce its Megapack battery, the company, and its chief executive, Elon Musk, said on Twitter. During a signing ceremony in the Chinese city, Tesla said construction of the plant is planned for the third quarter of this year, with production scheduled to begin in the second quarter of 2024.

Tesla opening Megapack factory in Shanghai to supplement output of Megapack factory in California https://t.co/hDpqoyNeOx

— Elon Musk (@elonmusk) April 9, 2023

 

Musk has pledged to expand the energy storage business to be on par with the company’s carmaking operations. China, where Tesla makes about a quarter of its revenue, is expected to produce about 10,000 Megapack units a year from the upcoming mega factory — equivalent to about 40-gigawatt hours of energy storage.

As it is, China is the second-largest market for Tesla after the US, accounting for nearly a quarter of its revenue in 2022. Its car plant in Shanghai, located on the outskirts of the city, accounts for roughly half of the company’s global car deliveries.

For context, Tesla’s Megapack system provides lithium-ion battery packs to help store renewable energy for electricity grids and represents a crucial driver for its energy storage and generation business. According to Tesla, one Megapack unit can store enough energy to power an average of 3,600 homes for one hour.

Tesla also noted that products produced at its mega factory would be sold worldwide. Meanwhile, according to a filing, its existing Megapack plant in Lathrop, California, is in the process of increasing production. Musk, in a tweet, said the planned Shanghai factory would supplement the output of the Megapack plant in California.

According to Bloomberg’s report, China already had more than 1,400 gigawatt-hours of battery manufacturing capacity, with another 6,000 gigawatt-hours under construction or announced. On the other hand, the US has the second-largest pipeline of about 1,000 gigawatt-hours of power, but the vast majority of that has yet to be built.

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