US President Donald Trump might not be amused with Tesla’s recent decision to pay 2.23 billion yuan ($323 million) to China, especially when the automaker receives roughly $700 million in US subsidies in every quarter. Last year, in its third-quarter alone, the company got $713 million in US subsidies. Many question the company’s decision to pay huge sums of money as an annual tax, a part of the lease agreement with Shanghai.
China being one of the biggest auto markets, Tesla is taking chances and nosediving into the pool of heavy expenses. The automaker aims at producing its electric vehicles from its factory on the outskirts of Shanghai, which is under construction. The company aims to start producing by the end of this year.
Tesla’s Gigafactory 3 is its first manufacturing unit in China. The factory, designed to produce electric vehicles, is the first factory in China which is complete owned by a foreign entity. The company took the decision to open its production unit in the US’s arch-rival nation to save up on shipping duties and tariffs. The recent trade war between the two giant economies has indirectly made a lot of US companies open their production units in China, including Apply. It is quiet contrary to what US President Donald Trump had in mind when he first imposed tariffs on Chinese goods.The information with regard to the tax came out courtesy the company’s latest quarterly filing shows, SEC Form 10-Q dated July 29.
As per the agreement with the government, Tesla committed to generate the annual tax revenues by the end of 2023 and if failed, would hand over the land back.
Tesla’s filings mentioned, “Under the terms of the agreement, we are required to spend 14.08 billion renminbi [$2.04 billion] in capital expenditures over the next five years, and to generate 2.23 billion renminbi [$320 million] of annual tax revenue starting at the end of 2023.”
It added, “If we are unwilling or unable to meet such target or obtain periodic project approvals, in accordance with the Chinese government’s standard terms for such arrangements, we would be required to revert the site to local government and receive compensation for the remaining value of the land lease, buildings and fixtures.”