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Tesla Is Set to Thrive As China Changes Policy (TSLA)

China is deliberating as to whether the country will loosen its strict policies with regard to foreign automakers manufacturing in the territory. Foreign automakers are currently prohibited to build in the country without a local partner.

Tesla (NASDAQ:TSLA) has been planning to expand in other markets to improve sales and the Chinese auto market is ideal as it is much bigger than the North American auto market. Tesla is reportedly planning to build a manufacturing facility near Shanghai. “Tesla is working with the Shanghai Municipal Government to explore the possibility of establishing a manufacturing facility in the region to serve the Chinese market. As we’ve said before, we expect to more clearly define our plans for production in China by the end of the year,” a report stated.

If the draft proposal is approved, opportunities will start opening up for Tesla and its business is set to flourish. However, despite the reported relaxation of policies, the battery-powered cars are still subject to 25% import tariff if sold. Gao Feng, China’s Ministry of Commerce spokesperson, refused to confirm the aforementioned plans of China during a press briefing.

Recently, China announced its plan of increasing electric vehicles on the road and gradually reducing gas-powered ones. Some of China’s largest cities are considered to be the most polluted cities in the world. This prompted the country to act on the persistent problem. Beijing is targeting 7 million electric-car sales in 2025, and 15 million in 2030. As a result, the oil market could be crippled. On the other hand, battery-powered automakers would experience a boom in their business. Previously, electric automakers have been reluctant to manufacture in the country as they fear that their intellectual property would be compromised. The recently reported development would be considered as a big win for them.

Establishing factories in China would set prices to a more affordable level as production costs are expected to be less costly. This is good news for both the manufacturer and the consumers. However, despite this, analysts fear that this venture could compromise the technology. The-free-trade-zone plan without the requirement for a Chinese partner could be a business boom or doom for Tesla.

Tencent Holdings Ltd., a Chinese investment holding company, bought back in March a 5% stake in Tesla for $1.78 billion. Tesla’s Chief Executive Officer, Elon Musk, tweeted, “Glad to have Tencent as an investor and adviser to Tesla.” The investment could aid in the navigation of the Chinese market.

In 2016, Tesla’s sales in China tripled and accounted for 14% of the company’s total sales. Tesla released a statement that it has been in talks with Chinese authorities about building a factory in Shanghai. The company is in hopes of having an announcement within 2017.