Tesla China Gigafactory Plan Revealed By Elon Musk In Earnings Call

Tesla CEO Elon Musk revealed plans for setting up a Gigafactory in China in the company's second-quarter earnings call Wednesday.

“We're thinking hard about, where do we put Gigafactories three, four, five and six? We expect to keep the majority of our production in the U.S., but it's, obviously, going to make sense to establish a Gigafactory in China and Europe to serve the markets there, because it's not [possible] to build cars in California and truck them halfway around the world, particularly when you're trying to make things as affordable as possible – that really hurts,” Musk said during the call.

Tesla's first Gigafactory was built at an estimated cost of $5 billion. While Tesla is setting up Gigafactories across the U.S., including one in Buffalo, New York, its plan of setting up one in China is a new development. The company has already announced plans of setting up a Gigafactory in Europe in November.

Read: Tesla Motors (TSLA) Gigafactory: Battery Cell Production Starts, But Will It Ramp Up Fast Enough?

“We really want to make our cars as affordable as possible. And so that does require some amount of local market production, particularly for the mass market vehicles in order to make it as accessible as possible,” Musk further said during the call.

While there are no set plans for a Gigafactoryin China, Musk wants to build one eventually. The decision makes sense since the company’s offerings such as the Model 3 are in high demand in the country.

According to Tesla’s Asia Pacific head, Ren Yuxiang, Model 3 reservations in China are higher than that of any other country except the U.S.

Tesla would be able to avoid significant import duties for Chinese manufacturers which could drive the price of its cars and act as a deterrent for prospective customers, especially since Musk claims that the company wants to keep its cars “as affordable as possible.”

But it might not be easy for Tesla to set up a China plant since the market requires foreign companies to have a local manufacturing partner. It means Tesla will have to share its technology with a Chinese company.

However, this has been already done by companies such as Apple whose biggest manufacturers for its smartphones remain Chinese companies such as Foxconn, Pegatron, and Wistron.

Initially, Tesla had stated it would be finalizing locations for Gigafactories 3, 4 and 5 by the end of the year in its 2016 earnings report released in February.

Read: Tesla (TSLA) Narrows Quarterly Loss, Announces Plan To Set Up 3 More Gigafactories

“Installation of Model 3 manufacturing equipment is underway in Fremont and at Gigafactory 1, where in January we began production of battery cells for energy storage products, which have the same form-factor as the cells that will be used in Model 3. Later this year, we expect to finalize locations for Gigafactories 3, 4 and possibly 5 (Gigafactory 2 is the Tesla solar plant in New York),” the company had stated.

Tesla stocks closed at an 8 percent high of $351 per share on Wednesday since the company beat expectations with revenue of $2.79 billion, in comparison to an expected $2.51 billion, according to Reuters.