Elon Musk has secured the financial backing of four Chinese state-controlled banks for Tesla's first offshore assembly, giving the US carmaker access to loans at cheaper-than-market rates to complete a cornerstone investment in Shanghai's new economic zone.

Tesla will get up to 11.25 billion yuan (US$1.61 billion) in financing from China Construction Bank, Industrial and Commercial Bank of China, Agricultural Bank of China and Shanghai Pudong Development Bank at "preferential rates," according to a banker involved in the deal.

The loan is ahead of a key milestone as Tesla starts delivering China-built cars on Monday, giving it a spot in the world's biggest market for electric cars, according to a Bloomberg report on Friday. The first 15 units of Model 3 cars assembled at Lingang near Shanghai will be for its employees, a company representative said by phone.

The 9 billion yuan loan carries an annualised interest rate of 0.7625 percentage point lower than the market-quoted rate published by the People's Bank of China, while the revolving loan costs 0.425 percentage point below the market rate. The central bank's guided one-year lending rate is about 5 per cent.

Chinese electric car battery makers out to show the world they have power and quality to go the distance

China is showering Tesla with favours as the Asian nation identifies the new energy sector as one of the 10 key industries for self-sufficiency and challenge for global leadership under its "Made in China 2025" economic blueprint. The factory is a bright spot in a year marked by souring ties as the US and China imposed higher tariffs on exports.

To court Tesla, China allowed the carmaker to operate a fully-owned plant without a local partner. The Ministry of Industry has also exempted Model 3 cars from consumption tax, making it cheaper for local buyers to own the vehicles.

Tesla owners in China can soon play mahjong and poker in cars

"The Chinese government and banks are giving substantial support to Tesla's Shanghai factory," said Gao Shen, a Shanghai-based independent manufacturing sector analyst. "China needs world-class electric vehicles to encourage purchases of environment-friendly cars."

For Tesla, Chief Executive Officer Musk is counting on the China plant to help build on recent momentum for the company in the world's largest market both for EVs and vehicles in general. The Model 3 will compete with electric cars from local contenders such as NIO Inc. and Xpeng Motors, as well as global manufacturers including BMW and Daimler.

Musk has earlier predicted Tesla will make at least 1,000 cars a week in Shanghai by the end of the year, a volume the company's original factory in California spent months trying to hit, and has said a weekly rate of 3,000 is a target at some point.

Tesla's Gigafactory 3 plant seen near Shanghai, China in December 2019. Photo: Reuters alt=Tesla's Gigafactory 3 plant seen near Shanghai, China in December 2019. Photo: Reuters

Tesla challenger NIO slashes more staff at US headquarters

Tesla said a similar loan package denominated in the US dollar would have cost 1.3 percentage points more than one-year London interbank offered rate or Libor for the secured portion. The unsecured facility would entail 0.8 percentage point more than Libor, it added.

With additional reporting by Bloomberg

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.