China Forces Tesla To Pay Huge Tax To Build Cars There


Will it have to hand over intellectual property, too?

The ongoing rumor regarding Tesla's intention to build cars in China sounds like it's about to become a reality, but it's coming at a cost for the EV carmaker. Automotive News and The Wall Street Journal have reported that Tesla is close to signing an agreement with the Chinese government to build a new factory in Shanghai. Neither side is commenting on the negotiations, but sources claim Tesla and the Shanghai Municipal Government are "explore(ing) the possibility of establishing a manufacturing facility in the region to serve the Chinese market."

That statement actually came from Tesla itself back in June, but the carmaker has refused to comment further. If the rumors are true, then Tesla and the Shanghai government have reached a deal to build the facility in the city's so-called free trade zone. Thing is, it's not exactly the free trade you'd think. You see, China forces foreign automakers to pay a 25 percent duty on imported vehicles. Furthermore, these same automakers are not allowed to build wholly owned factories there, meaning the Chinese government would also be part owners. There's also the issue of intellectual property. This government imposed setup literally forces foreign automakers to hand over some of their secrets.

Obviously none of them, Tesla included, want to do this, but Tesla does have one thing going for it the others don't: Chinese internet company Tencent Holdings Ltd. has a five percent stake in Tesla. Because of this, Tesla has an in-house ally to lobby on its behalf. But one thing is certain: Tesla would still have to pay that 25 percent tax. There's just no way around it. However, Tesla could simply reduce its production costs to make up for that. If reports prove true, an official announcement could be made next month – when President Trump makes an official visit to China.


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