SHANGHAI: Tesla has begun producing in Shanghai a version of the Model Y to be sold in Canada this year, the first time it will ship cars to North America from China, according to a person with direct knowledge of the plan and a production memo seen by Reuters.

The move would connect Tesla’s biggest and most cost-efficient factory in the world to North America, its largest market.

The Model Y is the electric vehicle (EV) maker’s best-selling model globally.

Over the weekend, Tesla posted on its website that it would offer a new, cheaper version of its Model Y in Canada, a rear-wheel drive variant of the SUV-styled crossover priced C$10,000 ($7,377.90) lower than the long-range version of the vehicle available in that market.

Tesla’s website showed that customers in Canada could take delivery of the new version of the Model Y between May and July.

The Canadian government’s website was updated on Friday to show that the new version of the Model Y and the more expensive long-range variant both qualify for incentives of C$5,000 on purchase or a four-year lease.

Tesla Shanghai began production of the Canada-bound version of Model Y earlier this month, the person with knowledge of the development said.

The production memo reviewed by Reuters showed that vehicles had been designed and tested for export to North America, with a target of producing nearly 9,000 this quarter.

Tesla did not immediately respond to a request for comment.

Reuters reported in November that Tesla had considered plans for exporting made-in-China vehicles to North America.

Tesla’s California market share tumbles despite aggressive price cuts

After the Reuters report was published, Tesla CEO Elon Musk, in a Twitter post, had said “False,” without elaborating. Musk told analysts last week that Tesla’s Shanghai plant had the “lowest cost structure” of any of its factories.

Subsidies

Canada’s transport agency’s EV incentive program mandates that a base model for an SUV has to be under C$60,000 to qualify for the subsidy of up to C$5,000.

Higher cost variants are then also eligible at a price of up to C$70,000.

The introduction of the cheaper Model Y for Canada qualified both it and Tesla’s C$69,900 long-range Model Y for the incentive as of Friday, Transport Canada said on its website.

Tesla’s Shanghai plant uses lithium-iron phosphate (LFP) batteries for the Model Y version produced there for sale in China and for export to Europe and other markets.

At its factories in Texas and California, Tesla has been rolling out a more powerful battery configuration known as 4680.

Tesla’s website shows the new, Canada-specific version of the Model Y has an EPA-rated range equivalent to 245 miles (394 km) on a charge.

The US version of the entry-level Model Y, which has all-wheel drive, has an EPA-rated range of 279 miles.

The new Model Y for Canada is also cheaper than the entry-level US model – $44,275 versus the current price of $46,990 for the US Tesla has cut US prices on Model Y variants three times since the start of the year, part of a discounting strategy to drive volume that sliced into its first quarter margin and touched off a price war on EVs.

It shipped more than 271,000 Model Y and Model 3 sedans from its Shanghai factory last year to Europe and other markets, roughly a fifth of its global sales.

Tesla is not alone in exporting EVs from China. Renault exports the Spring, an entry-level hatchback EV to Europe under its Dacia brand. BMW exports the iX3 from China to Southeast Asia and Europe.

China’s overall car exports grew four-fold between 2020 and 2022 to top two million vehicles and are on track to top three million this year if the first-quarter pace is sustained.