Tesla has announced that it’s opening an electric car company in China. Should they succeed with these efforts, the company will become the first foreign company to fully own a manufacturing plant in the country. This is a deal that would help test the relationship norms between the Chinese government and a foreign company. For the past years, not only has the Chinese government limited production options for Tesla but this has happened to other car manufacturers. One of the options that have been used by the Chinese authorities is making the foreign manufacturers share their profits with a local manufacturer. The other option involves steep tariffs in an effort to create a free-trade zone. In most cases, global car dealers including Toyota and General Motors opt for joint ventures. The fact that the Chinese government has allowed Tesla full ownership is an indication that the Far East nation has global ambitions. The Chinese government has not shied away in declaring that it wants to be the leader in electric car production. Two people close to the deal confirmed that the deal is with Shanghai Municipal. The municipal has agreed to allow Tesla full ownership of the facility in the city.
However, the two sources who asked for anonymity said that the plant would be located in a free trade zone. This means that the cars produced by Tesla would be subjected to steep tariffs by the Chinese government. However, Tesla can negotiate for special exemption with the government. A foreign trade zone treats products produced in these areas as if they are being imported from foreign countries. The current deal allows Tesla to maintain its trade secrets. However, there is a clause that allows for a renegotiation of the deal. The sources said that there are prospects that the deal will be concluded before the end of 2017. This is seen as a coup by many as Tesla will be in a prime position to acquire many products locally. At the moment, China has the largest market for electric cars. This has been made possible by the Chinese government desire to do away with gasoline-powered cars by the end of 2050. For instance, a recent study carried out by LMC Automotive found out that close to 295,000 battery-electric cars will be sold in the country by the end of 2017. The rest of the world will buy only 287,000 electric cars.