Tesla Announces Megapack Battery Factory in China Despite De-Coupling Trend

Tesla Announces Megapack Battery Factory in China Despite De-Coupling Trend
Tesla's factory in Shanghai, China (China News Service)

The Lede: Tesla plans to invest in and build a new advanced Megapack battery factory in Shanghai even as the path of de-coupling gains traction among many U.S. and American-aligned entities.

What We Know:

  • Elon Musk announced that Tesla plans to start manufacturing its Megapack large-scale energy-storage units, an advanced type of battery, at the new facility that will operate in addition to the existing electric vehicle factory in Shanghai. Musk reportedly visited the Tesla Gigafactory plant and met with local Chinese authorities.
  • The announcement was made at a signing ceremony attended by Tom Zhu, Tesla’s senior vice president of automotive, and Shanghai government officials including vice mayor Wu Qing. Tesla Vice President Tao Lin signed the contract.
  • Construction is expected to begin in the third quarter of 2023 with the plant starting production in the second quarter of 2024. The new factory in China will initially produce 10,000 Megapacks every year, which is expected to produce around 40 GWh of energy storage, and the products will be sold around the world. This venture will supplement Tesla's existing Megapack production at its California factory.

The Background: Tesla has been producing Model 3 cars in Shanghai since 2019 and is capable of producing 22,000 units of cars per week. The Megapack is designed to be a massive battery that functions to help stabilize energy grids. Each unit can store enough energy to power an average of 3,600 homes for one hour. Musk is also reportedly looking to partner with Chinese EV battery company Contemporary Amperex Technology Group to build EV batteries in Texas.

Likely Outcomes:

  • The U.S. and major companies like Apple have moved to cut supply chains with China. Musk and Tesla’s increased commitment to investment and production in China can be seen as falling out of line with the West’s strategy of diverging from China, but also a bargaining chip for the future as an important area of cooperation or as the target of future trade restrictions by lawmakers on both sides in their political competition. Musk likely recognizes the precarious position he has put his business in, but unlike others in the American government and industry, he is counting on cooler heads to prevail so that he may benefit amid heightened competition among hybrid and EV manufacturers.
  • China likely will see this as an opportunity to increase its technical and production capabilities in the competitive EV industry. By cooperating with Tesla, Chinese companies can diversify their products to this versatile battery tech as a way to reposition due to rising inventory from weaker demand which recently led to aggressive price cuts. They also may avoid falling behind U.S. producers on this potentially vital energy technology.

Good Reads:

Elon Musk reveals plans for a new factory making Megapacks on Shanghai visit, while Apple mulls 'decoupling' from China (Insider)

Tesla to build Shanghai factory to make Megapack batteries (Reuters)

Tesla boosts China investment with plans for Shanghai battery factory (Financial Times)

Tesla to build battery factory in Shanghai as Apple shifts more iPhone production out of China (Fortune)