Tesla has signed an agreement to build what it's calling "Gigafactory 3" in Shanghai.
The automaker has reached a preliminary agreement with the government of Shanghai - the city is an automaker hub - to build a factory with a capacity to produce 500,000 vehicles a year, Bloomberg reports. Local production would also allow Tesla to reach a wider audience of buyers in China and in the Asia-Pacific region, offering lower prices and tailoring the vehicles' offerings to the tastes of the local market.
Tesla did not immediately respond to requests for comment. Musk, 47, said more than two years ago that he expected Tesla to produce more than 500,000 vehicles in 2018 at its lone car-assembly plant in Fremont, California, but the company is well off that pace because of the Model 3's slow start.
China is the world's biggest electric vehicle market but Tesla and other producers including GM and Nissan Motor Co. had been reluctant to transfer manufacturing to this country due to the requirement to share technology with Chinese partners that might become rivals.
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A woman sits in a Tesla Model 3 vehicle at the Auto China 2018 motor show in Beijing on April 25, 2018. Construction will begin soon after approvals and permits are secured, and the first vehicles will roll off the line within roughly two years, a Tesla spokesman said in an email. That level would be more than double the current US market, where new light vehicle sales run at about 17 million vehicles a year.
Tesla hiked prices in China over the weekend to a level more than 70 percent higher than in the United States amid mounting trade frictions between Washington and Beijing that have seen several USA imports, including cars, subjected to retaliatory tariffs of 25 percent. Tesla has built about 88,000 cars through the first half of this year.
The China facility could give Tesla a fresh start in how it produces its vehicles, and an opportunity before building to create a more efficient system.
By building another factory in their second-largest market, Tesla could bypass the tariff war between the United States and China. After China announced in May that it planned to scrap by 2022 the rules on capping foreign ownership of new-energy vehicle ventures, Tesla registered a new electric auto firm in Shanghai. A plant in China also reduces shipping costs and potentially makes sourcing components more economical.
Auto brands in China are required to make electric vehicles at least 10 percent of their sales starting next year or buy credits from competitors that exceed their quotas. Musk's company got around the encouraged/required partnership with a local Chinese company by opting to build in Shanghai's free trade zone.