Tesla May Be Moving Right-Hand Model 3 Production To China

In the past few days, there have been rumors suggesting Tesla is going to start shipping China made Model 3s to other countries. Here we discuss why it makes a lot of sense.

In my previous article, I discussed rumors coming out of China, suggesting Tesla’s plans to start shipment of Model 3s made in its Shanghai Gigafactory to some Asian countries including Singapore, Australia, New Zealand as well as European markets.

All three countries named in the leak are right-hand drive and the wording of “some countries in Asia” and the European market also suggests the Chinese factory might be targeting right-hand-drive markets for its initial exports.

In the previous story, I discuss the many advantages to this move and one potential drawback to the customers in these countries who will be getting the made in China Model 3s. But what would this move mean for Tesla?

Tesla’s Fremont, California factory, even though humongous, is notoriously constrained for space. See how Tesla had to put Model Y’s single-piece rear casting machine in a parking lot. The factory was initially run by NUMMI, a joint venture operated by Toyota and GM before it was taken over by Tesla in the wake of the 2008 financial crisis.

On top of that, Tesla started designing the production systems in its infancy, with new sections being added through time as the need arose, rather than having the full blueprint of future products. Due to this reason, the Fremont factory is Tesla’s least efficient factory.

In addition to this, there are a number of unique site-specific costs associated with shipping cars made in California to Asia. An obvious one would be the increased cost of shipping and logistics. For example, one notable instance is the difference in distance between shipping cars made in China to Singapore compared with doing the same from California, Coming in at less than one-third of the distance, 2600 miles compared to 8700 miles for the latter. This will obviously save Tesla a significant cost associated with transportation.

Another advantage of having the Shanghai Gigafactory supplying the Asian market would be the lower cost of production. This is due to the lower cost of doing business and relatively cheaper labor costs in China. Tesla’s Chief financial officer has said in the past it is already cheaper to produce Model 3s in Shanghai than in California.

Finally, these factors all add up to give the idea of moving some production of Model 3s, especially ones intended for the Asian market, out of California, and to China a clear advantage. Still, at this point, this is just my speculation and doesn’t have anything confirmed, but from a logical point of view, this move would make perfect sense for Tesla.

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Tinsae Aregay has been following Tesla and The evolution of the EV space on a daily basis for several years. He covers everything about Tesla from the cars to Elon Musk, the energy business, and autonomy. Follow Tinsae on Twitter at @TinsaeAregay for daily Tesla news.