Concerns about the shrinking U.S. tax credit and Tesla's decision to cut prices by Dollars 2,000 to partially offset the lower incentive sent the automaker's shares plunging 9.7 percent during the first two trading days of the year.
The $2 billion (R28m) factory - long under discussion - marks a major bet by the United States electric vehicle maker as it looks to bolster its presence in the world's biggest auto market, where it faces rising competition from a swathe of domestic rivals and its sales have been hit by increased tariffs on USA imports. The challenging environment also includes competition from several start-ups that all want to be like Tesla. The US Securities and Exchange Commission moved to punish Tesla a year ago after his infamous "funding secured" tweet, with fines and a settlement that required corporate governance reforms.
"Such an aggressive timeline is classic Elon Musk, especially considering that components of Gigafactory 3, such as the advanced manufacturing robots and machinery that would be used to build the vehicles, would likely be coming from overseas", the report said. The company cut the price of all its models by $2,000 to partially offset the loss of the subsidy.
China typically requires foreign automakers to set up joint ventures with domestic firms when establishing manufacturing plants, which entails the sharing of profits and technology with local partners.
Domestic production would help shield Tesla against import duties as the USA and China find ways to wriggle out of the tariff quandary. The two sides have called a truce and are engaged in talks to cool tensions, with China temporarily scrapping the retaliatory 25 per cent tax starting Jan 1.
Tesla builds the imported from China on-Board computer in his work in California, Fremont in the cars. In November, it clocked 393. Stock losses in China previous year wiped out more than US$2 trillion of wealth, denting consumer appetite for luxury goods.
Passenger vehicle sales in the world's second-largest economy declined for six consecutive months through November, putting them on track for the annual decline.
Last month, Deputy Secretary of the Municipal Party Committee and Mayor of Shanghai Ying Yong stated that Tesla "basically completed land leveling and is about to start construction" at Gigafactory 3.
Tesla plans to produce its Model 3 and Model Y cars in the initial phase of production at the Shanghai plant, with an annual capacity of 250 000 vehicles.
For the most comprehensive local coverage, subscribe today.
It may start off with a general assembly facility and investors should not expect production to start this year, according to Maynard Um, an analyst at Macquarie Capital (USA) Inc.
The new Gigafactory will produce Tesla Model 3 and the produce will be used to cater to Greater China region demands.