Tesla Inc (NASDAQ:TSLA) reported that the trial production of its Model 3 has commenced, ahead of schedule, at its new factory near Shanghai. However, the company is still looking for a manufacturing license, which it expects by the end of this year. The company has cleared initial challenges toward its manufacturing license and is now working toward meeting other governmental milestones before it starts ramping production at the Shanghai facility.
Focus on global expansion
Elon Musk, the CEO of Tesla, is pushing ahead with international expansion strategy after beating the deadline to commence manufacturing vehicles in China. Few global production facilities will probably be critical to the company’s future. Easier access to key international automobile markets could increase Tesla’s prospective new clients. Success for the company in the Chinese market and other global markets could increase optimism that Tesla can achieve delivery targets as it expands.
The CEO of Tesla termed the Shanghai plant as the “template for future growth.” He said that the Shanghai plant is set to become the new normal. Investors are delighted by the overall progress that the company has achieved in the last quarter. For Q32019, adjusted EPS came at $1.86 versus expected losses of 42 cents. There was a decline in the ASP of Model 3; however, the automotive gross margins surged to 22.8% from 18.9% in the second quarter.
The strong pace of execution
The company has considerably worked on the capital efficiency and pace of execution of new production lines. Shanghai facility was built in just ten months; the construction costs was 65% less compared to the costs of building Tesla’s Model 3 production facility in the U.S. Tu Le, the founder of Sino Auto Insights, stated that it takes time to happen things in China.
Tesla managed to get strong support from the Chinese government in 2018. It became the first foreign automobile company that had set a factory in China without a local partner. The management believes that if the execution goes well, the Shanghai facility could help Tesla to grow its overall output by as much as 300%. The initial target for the Shanghai plant is to make 250,000 cars annually.