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Welcome to China, Tesla. Now it’s time to cough



Welcome to China, Elon. Let's talk about how this will work.

In the midst of a commercial brewing war, Tesla Inc. has emerged as a clear victim. On Tuesday, CEO Elon Musk signed an agreement with the Shanghai government to open Tesla's first factory outside the US. UU., With capacity to build 500,000 cars per year. The size of the investment was not disclosed, nor was the terms of the agreement. At a briefing on Wednesday, a Shanghai government official said any exchange of technology with Tesla would be "subject to negotiations," in response to a question from Bloomberg News.

Access to China is a panacea for the energetic electric car manufacturer but Musk is entering with a weakened position. On Tuesday, Tesla also signed an electric vehicle investment agreement with the Shanghai Lingang Management Committee, the Lingang Area Development Administration and the Lingang Group. A development and innovation center will also be established. In theory, this is where a technology transfer could occur, even without a joint venture.

That would be contrary to the purpose of having a fully owned company. On the other hand, that is the art of Trump's deal. Why keep Tesla's feet on fire when the Chinese government can?

The Shanghai government also suggested that it could start up the capital and help Tesla with the construction of its factory to make it work as soon as possible. Estimates for a Model 3 production line range between $ 3 billion and $ 5 billion. At its current burning speed, Tesla does not have that kind of capital at its immediate disposal. A Tesla spokesman said construction is expected to start soon, " after we get all the necessary approvals and permits." It will be another two years before cars start rolling on the assembly line and then another two or three years to increase to full capacity.

But the big promises in China come with a price tag. At the National People's Congress earlier this year, Prime Minister Li Keqiang assured the world that there would be no mandatory technology transfers in the manufacturing sector. S haring know-how as a quid pro quo has long been a bone of contention for foreign companies operating under joint ventures, a key way to obtain international funds in the country.

In a working paper of the National Bureau of Economic Research published earlier this year, economists examined data between 1998 and 2007 and concluded that China's policy of requesting transfers of technology "foreign investors for domestic operations" was successful. He discovered that there were many ways in which this happened. For example, when the share of sales of a joint venture increased by 10 percentage points, other companies in the industry were also 10 percent more productive.

For Tesla, who always extolled the virtues of his own technology, this poses a great threat Beijing has defended the cause of new energy vehicles and has supported the sector with policies and subsidies to make China the biggest electric car market. However, it has not produced a champion of its own. Tesla can be the convenient solution.

To contact the author of this story:
Anjani Trivedi in atrivedi39 @ bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas in knicholas2 @ bloomberg. net

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