Tesla Model 3 for Australia will be “made in China”, but will price come down?

Tesla will reportedly soon start shipping China-made Model 3 electric vehicles to right-hand drive markets including Australia, New Zealand and Singapore, upturning a previous decision that its Shanghai factory would only serve the “greater China” region.

According to a report from Bloomberg, sources who declined to be named said that “mass production” of the Model 3 would commence in the fourth quarter of 2020 after which units would be shipped to Asia-Pacific right-hand drive markets as well as Europe.

Tesla’s Shanghai “Giga 3” factory – its first electric car factory outside the US – began production in the last days of 2019.

When Tesla CEO and co-founder Elon Musk broke ground on the factory in January of 2019, he said at the time that, “Shanghai Giga will produce affordable versions of 3/Y for greater China. All Model S/X & higher cost versions of Model 3/Y will still be built in US for WW market, incl China.”

The news that Tesla may now be planning to ship China-made markets suggests that demand for the Model 3 in China may not be as high as the Shanghai factory’s production capacity, which Tesla listed as 200,000 vehicles per annum in its Q2 2020 earnings report.

Tesla is also planning to build the Model Y at Shanghai, in an additional building that is currently under construction.

Small numbers of vehicles have been shipped from Fremont to Hong Kong – also a right-hand drive market – suggesting that Shanghai is not yet making right-hand drive vehicles, even for the beleaguered administrative region.

The Driven has contacted Tesla in Australia for comment and will update this article if more news comes to hand, but the possibility that China-made Tesla cars may be destined for Australia, of course, bring up the topic of price.

Pricing for electric vehicles in Australia attract a premium compared to combustion vehicles because of the high price of batteries, but premium vehicles such as Tesla’s range of electric cars (the Model 3 is considered an executive vehicle despite being a “mass-market” offering in the US) also have high pricing because of currency conversion, and in many cases the outdated luxury car tax as well as import costs.

Tesla hiked the price of the Model 3, which was introduced at $66,000 (before on-roads) when it was first released in August 2019, to a base price of $73,900 as the Australian dollar tanked in the outset of the pandemic.

Although the value of the Australian dollar has now returned to 2018 levels at 73 cents to the US dollar, Tesla has not yet readjusted the price of the Model 3 in Australia.

In China, the Standard Range Plus Model 3 currently costs 271,500 yuan ($A54,653, noting a straight currency conversion does not take into account shipping, taxes and other factors).

The price of the Model Y, which is not yet available for order in Australia, is currently estimated at $AU83,000-85,000 – more than a BMW X4. Interestingly, in China the Long Range Model Y is currently priced from 488,000 yuan, which converts to $A98,218.

If Tesla imports China-made Model 3s, and eventually Model Ys, to Australia, will we see either of these prices drop?

Tesla is working on reduced production costs by localising supply of parts – at the company’s Q2 2020 earnings call, chief financial officer Zachary Kirkhorn noted that he expected the China-made Model 3 would be 80% locally made components by the end of 2020.

“Just locally sourcing those components makes a massive difference to the cost of the vehicle,” said Musk.

But there could be a pay off. Tesla is also using a different battery in its China-made Model 3, which uses an lithium iron phosphate (LFP) battery that is less energy dense that the nickel cobalt aluminium (NCA) batteries used of US-made vehicles.

However, Musk also noted at the time that improvements in efficiency – including using a heat pump in the China-made Model 3 in late 2020 – meant Tesla is “comfortable” with using the lower density LFP battery.

“What we’re seeing with our passenger vehicles is that our powertrain efficiency and tire efficiency, drive coefficient like basically all of the things that, like, you know, our HVAC, going to a heat pump, basically our total vehicle efficiency has gotten good enough with Model 3, for example, that we actually are comfortable having an iron phosphate battery pack in Model 3 in China,” Musk said, adding that, “that will be in volume production later this year.”