Tesla has reached an agreement with the Chinese authorities to build a battery and automobile factory in Shanghai, its first plant outside of the United States, the company said on Tuesday.
Tesla said it expected that the plant would eventually produce 500,000 electric vehicles a year, and that the effort would also include a research-and-development center and a sales operation.
The carmaker did not disclose how much it planned to invest in the venture, but it said it would be the sole owner. Other foreign automakers, including General Motors, Volkswagen and Toyota, have been required to form joint ventures with local partners to produce cars in China. But the Chinese government recently said it would ease that requirement, an arrangement that could expose company secrets.
Tesla said in a statement that it expected to begin construction as soon as it had obtained the necessary approvals and permits. “From there, it will take roughly two years until we start producing vehicles and then another two to three years before the factory is fully ramped up,” the company said.
Elon Musk, the company’s chief executive, said the plant would be “a role model for sustainability.”
[Read More: Inside Tesla’s desperate effort to speed up production of its new Model 3 at its factory in California.]
As part of the initiative, Tesla signed an agreement to cooperate with the Shanghai municipal government and an investment agreement with the Lingang Area Development Administration. Lingang is a coastal area southeast of Shanghai that the authorities have been trying to develop for several years.
Ying Yong, Shanghai’s mayor, said in a translated statement that his government “will give full support to the construction of Tesla’s factory.”
The government statement said the effort was the largest manufacturing project backed by foreign investment in Shanghai’s history.
A Tesla factory in China is most likely not something the Trump administration wants to see.
The White House began a trade war with China partly to discourage American companies from shifting operations there. The administration has argued that China often uses unfair methods to either encourage companies to move there or force them to give up or share technology with Chinese companies if they want access to the country.
The trade conflict has already proved costly for Tesla. Thanks to recently imposed tariffs, the price of a new Model S in China has risen by about one-fifth, to nearly $130,000.
Chinese leaders, worried about skies choked with pollution and the country’s growing dependence on foreign oil, have championed electric cars as a possible solution. A Tesla manufacturing plant in China could aid Beijing in its effort to take a strong global position in producing electric cars and other technologies of the future, a vision outlined in the Made in China 2025 plan.
With its decision to open a plant in China, Tesla is responding to carrots and sticks. Producing vehicles in China would help the company avoid Beijing’s longstanding duties on imported cars. Although China has pledged to cut those duties, they remain high compared with those levied by many other countries, including the United States.
But making cars in China offers big benefits to Tesla. It would put the company close to China’s huge automotive supply chain. Even more important, it would provide a firmer foothold in a potentially vast market. China is the company’s second- largest market after the United States. Its revenue there doubled to $2 billion last year. A base there could also help insulate the company from future trade conflicts.
China has a number of electric-car makers, but they tend to make smaller, more affordable vehicles that lack the polish of Tesla’s offerings. The American-made cars can frequently be seen in some of the more upscale areas of Beijing and Shanghai.