Tesla set to build its first factory in China following government approval

Customers look at a Model X at Tesla’s showroom in Shanghai China on Tuesday Sept. 12 2017. Source Qilai Shen  Bloomberg via Getty Images

Customers look at a Model X at Tesla’s showroom in Shanghai China on Tuesday Sept. 12 2017. Source Qilai Shen Bloomberg via Getty Images

However, it looks like Elon Musk's outfit may have reached a compromise: Wall Street Journalsources claim that Tesla has a deal to build a factory in Shanghai's free trade zone. Once Tesla has its future Shanghai factory up and running, they could have boots on the ground towards tapping into the e-car market for China and in turn boost the company's global production immensely.

No timeframe for the launch of the Tesla plant was given.

Elon Musk's Tesla electric auto company is reported to have struck a deal with Chinese authorities to build a factory in Shanghai, opening up the world's largest automotive market to the fast-growing business.

Local production would make it easier for Tesla to access China's auto-parts supply network and engineering talent pool at lower costs, accelerating sales growth and helping it compete with BYD - China's largest maker of electric cars - for market dominance, according to Bloomberg Intelligence. The question now is whether other manufacturers will follow Tesla's lead and build factories in China without a local partner.

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China has the world's largest vehicle market and has aggressive targets for electric cars. "While we expect most of our production to remain in the United States, we do not need to establish local factories to ensure affordability for the markets they serve".

Tesla could be starting up a factory in China soon - in Shanghai's free trade zone, to be exact - and it could finally see improved sales in the country, whose market it has wanted to crack for so long.

The report did not offer details on when a deal might be announced. Instead, Tesla will own the entire factory. It is trying to increase the output of its new Model 3 sedan but acknowledged earlier this month that production bottlenecks had held third-quarter production to just 260 vehicles, well short of the 1,500 previously planned. The Chinese internet company Tencent Holdings Ltd has a 5% stake in Tesla. The automaker may still be subject to tariffs, however, as goods entering the country from a free-trade zone are still considered to have been imported.

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