The deal was announced as Tesla raised prices on U.S. -made vehicles it sells in China to offset the cost of new tariffs imposed by the Chinese government in retaliation for U.S. President Donald Trump's heavier duties on Chinese goods.
Tesla announced previous year it was working with the Shanghai municipal government to explore the possibility of establishing a factory in the region. Tesla can start to produce and provide its vehicles for the Chinese market while Shanghai will benefit from thousands of new jobs, local companies receiving new orders from Tesla, and a general boost to the local economy any major business investment brings. It said auto production there should begin about two years later, and that it should then be another two to three years after that for the plant to reach its 500,000 annual car-production capacity.
Tesla shares rose 1.5 percent in USA trading even as some analysts questioned where the money-losing company will get the capital required to build and staff such a large plant. Tesla produced 5,031 Model 3s in the last week of the second quarter in its Fremont plant, meeting a target that Musk had said was crucial to generating cash and earning profit. Foreign companies have historically had to form a 50-50 joint venture with a local partner to build a factory in China. I'm sure Musk is just thinking "as soon as possible!"
In its statement, the Shanghai government suggested it could help with some of the capital costs.
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"Shanghai will be the location for the first Gigafactory outside the United States", Tesla CEO Elon Musk said in a statement.
Tesla Inc.'s announcement comes amid mounting U.S.
Once the new China factory is operational, Tesla could build cars for the Chinese market without paying the new import duties. The country has a stated goal of 100-percent electric vehicles by 2030, as part of its plan to tackle air pollution, so a Tesla plant in the country makes sense.
In November, Musk said Tesla was about three years away from starting production in the world's biggest auto market.
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Tesla follows Harley-Davidson in charting plans to expand outside the U.S. to circumvent tariffs under Trump's escalating trade disputes. A Tesla representative in China didn't immediately respond to a request for comment. The signing was held at Shanghai's Fairmont Peace Hotel but media attendance was limited, a Shanghai government official who declined to give his name told Reuters. Tesla and the Shanghai Municipal People's Government announced Tuesday they had signed the cooperative agreement. Bloomberg reported on Monday that Musk will visit Beijing on Wednesday and Thursday.
In April this year, however, China said it would be removing the 50-percent foreign ownership cap for electric vehicle (EV) and plug-in hybrid auto manufacturers as early as this year, in a move that would benefit Tesla enormously, which doesn't have local manufacturing and imports all the vehicles it sells on the Chinese market-the world's biggest EV market.
In May, Tesla slashed up to $14,000 off its Model X in China after Beijing said it would cut import tariffs to 15 percent from 25 percent for most vehicles from July 1.
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