The move could help cement the brand in China and circumvent steep tariffs on the cars.
Tesla Inc. has reached a preliminary agreement with the Shanghai government to build a factory that'll rival production from its lone US assembly plant, as Elon Musk takes his biggest step yet to expand overseas.
"Last year, we announced that we were working with the Shanghai Municipal Government to explore the possibility of establishing a factory in the region to serve the Chinese market", Tesla said in a press statement.
Tesla's Chief Executive Elon Musk attended the signing, according to a Reuters witness.
The preliminary agreement is a major development in Tesla's more than yearlong effort to open China's first production facility that will be wholly owned by a foreign carmaker.
Tesla didn't respond to a request for comment on the price rises.
The announcement came just as Tesla raised prices on its vehicles in China to offset the cost of tarrifs imposed by the Chinese government in retaliation for United States tarrifs recently levied on Chinese goods. Tesla has been burning through billions of dollars as it's struggled to ramp up manufacturing of the Model 3 sedan. 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.
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"We are glad to have a strategic partnership with Tesla, and we welcome the development, manufacture and sale of pure electric vehicles in Shanghai", Mayor Ying Yong said in a translated news release provided by Tesla. That was more than double the US level of just under 200,000.
Other automakers long ago capitulated to China's strict foreign ownership requirements for auto factories, requiring USA companies to establish 50:50 joint ventures with local firms to build cars in the world's largest auto market.
Tesla probably will make the smaller Model 3 sedan and upcoming Model Y crossover in China, Musk said in November, rather than the pricier Model S or Model X that often sell for more than $100,000 in the US.
It registered a new electric auto firm in Shanghai in May after China announced that it planned to scrap rules on capping foreign ownership of new-energy vehicle (NEV) ventures by 2022.
In the meantime, Tesla has reportedly hiked its prices for imported vehicles in China to offset costs of increasing tariffs.
Global automaker Daimler (DDAIF) warned last month that the new Chinese tariffs would hit its profits, resulting in "fewer than expected SUV sales and higher than expected costs", which won't be completely passed on to customers. It's been an idea Musk has mentioned to investors since past year.
BMW also announced plans to increase production in China, but it said that was because of increased demand for vehicles there.