Tesla to build huge Shanghai factory - local government

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The move could help cement the brand in China and circumvent steep tariffs on the cars.

China's fast-growing market for new-energy vehicles presents a massive growth opportunity for Tesla.

"Today, we have signed a Cooperative Agreement for Tesla to start building Gigafactory 3, a new electric vehicle manufacturing facility in Shanghai", Tesla said in an emailed statement. 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.

Elon Musk is expected to visit Shanghai and Beijing this week at events with representatives of the Chinese government, Bloomberg reported earlier this week. Foreign companies have historically had to form a 50-50 joint venture with a local partner to build a factory in China.

Tesla did not immediately respond to requests for comment.

Elon Musk, now traveling in Asia, signed an agreement Tuesday with officials in Shanghai to build a factory with the capacity to produce up to 500,000 vehicles per year.

Tesla shares rose 1.5 percent in early 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.

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Tesla (NASDAQ:TSLA) shares tumbled below $300 in early trading Thursday, July 5, to bring their three-day loss to almost 17%, as several Wall Street firms remain skeptical about the quality of the carmaker's Model 3 cars and its ability to meet weekly production targets profitably. It said production would begin two to three years after that and eventually increase to 500,000 vehicles annually. "The Shanghai municipal government will fully support the construction of the Tesla factory", the statement said.

The Chinese plant announcement comes just after Tesla raised prices on its cars in China by more than 70 percent higher than those it sells in the United States. Musk mentioned in an earnings call that a China factory would be the only way for Tesla to compete with the prices of China's local electric auto makers.

Tesla is the first major U.S. automaker to raise prices in China in response to the higher tariffs. That was more than double the USA level of just under 200,000.

The Wall Street Journal reports that prices on Tesla's website jumped by nearly 20 per cent over the weekend, shortly after the two countries imposed tariffs on $34 billion of each other's goods.

Tesla sold 14,779 vehicles in China past year, according to data from LMC Automotive.

Musk has also said the company will reveal plans near the end of 2018 to build a factory in Europe.

Once the new China factory is operational, Tesla could build cars for the Chinese market without paying the new import duties.

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