The made-in-China Model Y may start rolling off the Shanghai Gigafactory production lines of US electric carmaker Tesla earlier than expected. The company has placed a RMB 220 million ($31 million) order from a Chinese auto parts supplier for its compact SUV, TechNode confirmed on Thursday.

Why it matters: Locally sourcing parts and assembling vehicles helps the company slash the prices of its vehicles without cutting profits, therefore boosting sales and improving its balance sheet.

  • Tesla could potentially lower the cost of materials for its made-in-China Model 3 sedans by 13% if it localizes the entire supply chain for its China operations, Chinese equity firm Bohai Securities said in a report published in late February.
  • The Chinese-made Model 3 could improve its gross margin to 49% using all locally made parts, compared with 20% using US-made parts. Keeping the narrower margin on vehicles with all Chinese parts would lower the price to RMB 210,000, or one-third lower than its current sticker price of RMB 299,000, according to the report.

Details: Tesla China recently wrote up an order worth RMB 220 million of electronic controls for Model Y production in its Shanghai plant from Ningbo Joyson Electronic Corporation, an auto parts supplier listed on the Shanghai Stock Exchange, Chinese media reported Monday citing company insiders.

  • A company representative confirmed the order when contacted by TechNode on Thursday, adding that several of its business units had received orders from Tesla in different amounts.
  • Joyson declined to say when it would be delivering its parts to Tesla, only that it is running production “dynamically” to accommodate the carmaker’s production.
  • The manufacturer last month confirmed (in Chinese) it will supply Tesla parts for its locally built Model 3 and Model Y vehicles over a five-year period with an order value expected to reach RMB 1.5 billion.
  • Tesla began deliveries of its locally made Model 3 sedans in early January, around the same time CEO Elon Musk at a ceremony confirmed rumors that the Model Y would be produced at its Shanghai factory.
  • The pace of the Chinese-made Model Y appears faster than initial estimates targeting 2021. It may begin production as early as October, according to Tesla news outlet Teslarati citing a meeting record for Shanghai-based Shengang Securities.
  • The US EV giant has since been expanding its assembly to include the compact SUV. Its Shanghai factory resumed partial operations on Feb. 10 alongside Joyson, with the support of local governments, but immediately faced customer complaints for delivering cars with “downgraded” parts.
  • Tao Lin, Tesla’s vice president of external affairs last week told Chinese media that its production capacity has recovered to the level before the Covid-19 outbreak at about 3,000 units per week. The company earlier this year said around 30% of its supply chain has been localized and it aimed to increase that proportion to 70% by July and 100% by year-end.

Context: Joyson, with a subsidiary just a few miles away from Tesla’s Shanghai facilities, has secured orders worth more than RMB 7.5 billion from Tesla for human machine interface (HMI) parts and safety products such as airbags. TF Securities last month estimated all the contracts could contribute revenues of up to RMB 2.5 billion on average each year.

  • The Chinese parts maker boasts a wide range of product offerings, including vehicle control units, airbags, and steering wheels. Earlier this month the company announced that it will also supply parts such as battery management units to Volkswagen for its first mass-produced electric vehicle model ID.4, which is expected to land in Europe later this year.
  • Tesla did not immediately respond to requests for comment.

Correction: added text to clarify that the Model 3 price of RMB 210,000 was for a 20% gross margin on a Chinese-made vehicle, not 49% as an earlier version suggested.

Jill Shen is Shanghai-based technology reporter. She covers Chinese mobility, autonomous vehicles, and electric vehicles. Connect with her via e-mail: jill.shen@technode.com More by Jill Shen