A view of CATL headquarters in Ningde, East China's Fujian Province Photo: VCG

Companies in China that produce vehicle parts and components are vying to be included in the supply list of US-based Tesla, which has started to produce cars at its Shanghai factory. Tesla's entry into the domestic market will ramp up competition of the new-energy vehicle (NEV) sector in China, bringing both opportunities and challenges, analysts said.

Shanghai-listed Baosteel Co, China's largest maker of auto sheet, said at a meeting on Monday that the company has officially started supplying Tesla's Shanghai factory, without providing details.

There are 124 Chinese suppliers for Tesla's Model 3, which started trial production on Thursday, according to a report by investment bank Guotai Junan Securities.

Tesla's complex supply chain involves about 10 major inputs including power systems, underpans, central control systems, and interior and exterior decoration. Among suppliers, domestic ones mainly belong to the second tier, while first-tier suppliers from Japan, Europe and the US are responsible for Tesla's core technologies, said the Guotai Junan report.

The standard-range Model 3 has kicked off pre-orders with the starting price at 355,800 yuan ($50,307). 

It is not likely that Tesla will produce all its series in Shanghai in the near future because it needs to maintain stable supplies and take into account consumers' confidence in imports over localization, Yale Zhang, head of Shanghai-based consultancy Automotive Foresight, told the Global Times on Monday.

"It is natural that component suppliers want to join Tesla's list just like in the smartphone industry, they want to be picked by Huawei and Apple, which brings recognition and endorsement in the global market," said Zeng Zhiling, an analyst at Shanghai-based consultancy LMC Automotives.

"Tesla's localization can push the domestic supply chain to a new level via competition, bidding farewell to the production of electric cars with low-end technologies," Zeng said.As the supply chain becomes stronger, it will in return drive the whole NEV sector, he said.

Tesla has been steadily working with Japan's Panasonic Corp on batteries. But for its vehicles made in China, the US company has reportedly chosen South Korea's LG Chem, using the latter's facility in Nanjing, capital of East China's Jiangsu Province.

Currently, Contemporary Amperex Technology Co Ltd (CATL) is China's largest automotive lithium-ion battery maker. 

"Monopolistic conditions have resulted in high prices and delayed deliveries, which is not beneficial for the system in the long term," said Cui Dongshu, secretary-general of the China Passenger Car Association.

In June, China scrapped its list of recommended battery suppliers, opening up the world's largest NEV market to foreign battery makers.

Raw materials at the upstream of the battery industry chain are very likely to benefit from the supply chain's adjustment, said Cui. "For example, most raw materials such as lithium for LG Chem's battery plant in Nanjing are provided by local companies," said Cui.

It is also probable that Tesla will source products from other battery suppliers including local ones in the future since cost savings have become an inevitable trend for the US automaker.

The Shanghai factory, built in just 10 months, was about 65 percent less expensive to build than Tesla's Model 3 production system in the US, Tesla disclosed. It has predicted that China could become the largest market for the Model 3. 

In its third-quarter financial results released last week, Tesla turned in a profit of $143 million, the first time since the final quarter of 2018, by cutting operating costs.