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Tesla (TSLA) to Break Ground on Gigafactory Plant in China

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Per Reuters, electric vehicle (EV) pioneer Tesla, Inc. (TSLA - Free Report) is finally breaking ground for its Shanghai Gigafactory following a lot of planning. This is likely to strengthen its presence in the world’s biggest auto market wherein it encounters growing competition from several domestic rivals and also suffers soft sales due to elevated tariffs on U.S. imports.

Last year, the auto giant inked a deal with the Shanghai government for building the 500,000-unit factory. In order to grab more than 200 acres of land for the planned Gigafactory 3, Tesla shelled out $140 million. This will be the auto maker’s first vehicles manufacturing facility outside the United States. The company, which intends to begin production in 2019, is likely to churn out around 250,000 vehicles annually in the initial stage including the Model 3 and Model Y.

China Lure

A production base in China is critical for Tesla, which is fighting the odds of possible waning demand in the United States, particularly after the reductions of tax credits for the EVs. The company has decided to lower the price of all its models by $2,000 to partially compensate the loss of subsidy.

A wholly owned manufacturing facility in China would mean that the auto giant Tesla won’t have to share its profits and technology with Chinese partners. Domestic production will protect Tesla against high import duties resulting from the China-U.S. trade spat.

Shares of Tesla have outperformed the industry it belongs to in the past six months. The stock has slipped 0.2% compared with the 12.6% decrease of its industry.

Tesla currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the auto space are Advance Auto Parts, Inc. (AAP - Free Report) , Fox Factory Holding Corp. (FOXF - Free Report) and CarGurus, Inc. (CARG - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Advance Auto Parts has an expected long-term growth rate of 12.1%. Over the past year, shares of the company have surged 42.6%.

Fox Factory has an expected long-term growth rate of 17.9%. In a year’s time, the stock has soared 54.6%.

CarGurus has an expected long-term growth rate of 5%. In a year, shares of the company have rallied 9.4%.

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