The Shanghai factory will focus on the Model 3 and Model Y, a compact crossover utility vehicle. Tesla has set a starting price of 328,000 yuan ($48,000, some links in Chinese) for the cheapest version of the made-in-China Model 3, or around 40% of the starting price of a Model S in China. The made-in-China Model Y will come later, in 2021. Tesla currently imports all the cars it sells in the country.

To manage cost, Tesla is seeking to partner with battery makers other than Japan’s Panasonic for fully localized models in China, according to the note from Morgan Stanley. The bank didn’t say it’s likely Tesla will use batteries from China’s Tianjin-based state-owned Lishen,  and Korean’s LG Chem from 2020 onwards. Neither Panasonic or Tesla respond to comment requests on the partnerships.

Musk’s expectation of eventually ramping up delivery to 5,000 cars a week is in line with Morgan Stanley’s longer-term forecast that Tesla’s China sales will peak at 254,000 units per year by 2024, or half of the Shanghai Gigafactory’s annual capacity when completed in the next few years. The factory won’t be delivering cars to Europe, he added.

Tesla’s Model 3 and Model Y will be competing with a range of Chinese electric cars at similar prices. When it gets those products ready next year, it will end up with only a niche market if it continues focusing on the premium branding position, said John Zeng, a Shanghai-based analyst for consulting firm LMC Automotive.

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