Two days after announcing construction on its Shanghai megafactory was complete, Tesla began selling its first China-built car: the Tesla Model 3, complete with Autopilot functions. However, at $50,000 Tesla’s China fans won’t be saving much off the cost of an import.
An order form for the China-made Model 3 with Autopilot appeared on Tesla’s China website on Friday, listing a starting price of Rmb355,800 ($50,320). That’s roughly 3% less than the cost of the same model imported from the U.S. while import tariffs—which the Shanghai-built model will obviously be avoiding—sit at 15%.
The new Shanghai-made Model 3 is the first offering from a foreign car brand to be built and sold in China without a local partner. It will be available for delivery in the first quarter next year. However, production is due to begin by the end of 2019.
By the end of the year, Tesla expects its new factory will be churning out 1,000 units a week, but production capacity is set to rise to 250,000 annual units in an initial stage and, eventually, max-out at 500,000 units a year. Tesla CEO Elon Musk expects the Shanghai factory, which will manufacture Model 3 and Model Y units, to triple Tesla’s global production capacity.
“China is by far the largest market for mid-sized premium sedans. With Model 3 priced on par with gasoline powered mid-sized sedans (even before gas savings and other benefits), we believe China could become the biggest market for Model 3,” Tesla said in a note to shareholders Wednesday.
Under the hood
Tesla announced the factory’s completion ahead of schedule in its earnings report Wednesday. Construction of the plant, which began in January, was completed in just ten months. Tesla also confirmed that a second building, which will house battery manufacturing facilities, is under construction at the site in Shanghai.
In a conference call following the release of Tesla’s second quarter earnings—where the EV maker reported a return to profit, recording a net income of $143 million—Tesla CFO Zachary Kirkhorn noted the role cost reductions, such as reducing the number of hours of labor required to produce each car, played in increasing profitability.
As Tesla’s Shanghai factory is brand new it’s likely that production costs of Tesla’s Chinese cars will decline over time, too. However, customers might not benefit from Tesla’s savings as all of Tesla’s China offerings come at a premium to its U.S. equivalents. The Model 3 with Autopilot, for example, retails at around $39,000 in the U.S.
There should already be savings to share. Although the factory is just complete, the company reports its Shanghai factory was 65% cheaper to build than its Model 3 plant in the U.S. Labor costs will ultimately be lower in China than in Fremont, Calif. as well, and Tesla already scored a tax break on the manufacture of its Chinese EVs. The relatively high price of the forthcoming Chinese Model 3 could be a deliberate bid to maintain Tesla’s branding as a premium product.
In addition to retailing at a higher cost than U.S. equivalents, Tesla models are also more expensive than offerings from local rivals in China. For example, Shenzhen-based BYD, the world’s largest EV manufacturer, sells its latest E3 sedan for roughly $14,000.
However, China’s auto market—the world’s largest—is in a slump. Sales of New Energy Vehicles, which is a category dominated by electric cars, fell 34% in September after Beijing cut subsidies on EVs by up to 60% in March. As a result, the cost of that BYD could go up, but the market downturn could make Tesla’s sales targets harder to reach.
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