Tesla eyes China as U.S. output struggles

Tesla took a big step toward expanding its manufacturing footprint overseas, signing a preliminary agreement last week to build a plant in China.

But the company further signaled that demand for its most affordable electric vehicle has faded considerably amid its struggles to produce in high volumes.

The Silicon Valley automaker essentially did away with the Model 3 reservation process that began collecting $1,000 deposits from would-be customers more than two years ago. Its website now solicits orders from anyone in the U.S. and Canada, promising delivery in as little as one to three months for a nonrefundable $2,500 down payment.

Tesla made the change after closing the second quarter by meeting its long-delayed goal of producing 5,000 Model 3s in one week, a rate many analysts doubt the company can sustain.

A China plant would enable Tesla to serve fast-growing demand for EVs there while avoiding tariffs imposed in a burgeoning trade war with the U.S. But it's unclear how the company would pay for the plant and when, or if, it might be built. Tesla said production would start after roughly two years of construction, eventually reaching half a million vehicles annually.

As Barclays Capital analyst Brian Johnson noted, Tesla's targets "have a tendency, shall we say, to be a bit optimistic."