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

US electric vehicle firm Tesla has struck a deal with the Chinese Government to build a new facility in the country

Tesla expects to have a fully defined production plan for China in place by the end of the year

US electric carmaker Tesla has struck a deal with the Shanghai Government to build its first factory in China, representing a significant milestone in its attempts to establish a presence in the world’s largest electric vehicle market.

In June, Tesla announced it was working with Shanghai authorities to explore local manufacturing options in the region, revealing it expected to have a clearly defined production plan in place by the end of the year.

Although confirmation is still pending, the deal would allow Tesla to build a plant in Shanghai’s free trade zone, where it will be able to cut production costs to better compete in the local market. Specifically, having a base in China will give Tesla proximity to local suppliers, reducing production costs by as much as 50 percent, according to The Wall Street Journal.

Unlike other foreign carmakers entering the Chinese market, Tesla has refused to set up a joint venture with a local company, opting instead to pay the import tariff in exchange for keeping its technology a secret

However, under current rules, the electric vehicle manufacturer will still be subject to the 25 percent import tariff applied by the country’s authorities. Unlike other foreign carmakers entering the Chinese market, Tesla has refused to set up a joint venture with a local company, opting instead to pay the import tariff in exchange for keeping its technology a secret.

The new facility will be Tesla’s first real footprint in China’s fast growing electric car market, with the company’s current presence only coming in the form of sales offices. In 2016, 507,000 electric vehicles and plug-in hybrid electric vehicles were sold in China, a 53 percent increase on the previous year. In contrast, European sales totalled 222,200, growing 14 percent annually.

Xin Guobin, China’s Vice Minister of Industry and Information Technology, further buoyed market expectations in September, revealing the country was working on a timetable to end the production and sale of polluting vehicles.