This is why Tesla and others still believe in China
Electric-car builder Tesla is not moving out of China, despite U.S. President Donald Trump’s war to bring back American manufacturers.
Tesla, according to Nikkei Asian Review is even revving up their production engines on the mainland.
A majority of companies in semiconductor equipment and materials, as well as health care, are actually expanding Chinese production.
This is what a Goldman Sachs report released last Friday says. It adds that in the auto and industrial machinery sectors, moving out of China and Chinese expansion are happening simultaneously.
Nearly all companies in apparel and smartphones have moved, plan to move, or are considering moving.
Some will move at least part of their operations out of China.
Tesla’s CEO Elon Musk told analysts in July that “the suppliers in China have been extremely competitive, possibly the most competitive in the world.”
This means Tesla will stick around in China to continue its production.
“The Shanghai factory is a pretty big factory. … It’s continuing to do more and more internally,” Musk said. What really helps is its increased local sourcing of components, which “makes a massive difference to the cost of the vehicle,” he says.
Tesla is the world’s most valuable car company and plans to export China-built Model 3 cars to other markets in Asia and Europe.
Tesla’s choices make it difficult for President Trump. It shows that the political rhetoric and the industrial reality are not the same.
The difference is huge and there is limited evidence of a broad-based reshoring of manufacturing activity back to the U.S.
TESLA NOT ALONE
At least 70.6% out of 200 respondents in a survey says they do not intend to shift production out of the Asian country.
The survey is published by the American Chamber of Commerce in Shanghai.
Just 3.7% are moving some production out of China to the U.S. or its territories as Trump had hoped his tariffs would make them.
Only 18.2% intend to move more than 30% of their production out of China.
Even for companies moving out of China, “rising labor costs are most usually the trigger,” according to Goldman’s research.
China still offers advantages in the manufacturing sector that other countries are yet to offer, says the Goldman report.
It is still a huge domestic market, has complete industry supply chains and good infrastructure. These, Goldman says, are most attractive to investors.
“When asked about top locations for moving out of mainland China, Vietnam and India are the most mentioned destinations,” says Goldman.