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Tesla unveils Shanghai factory plans amid US-China trade row

Dan Martin
The Shanghai deal marks the biggest overseas foray yet for Tesla, which is looking to expand into global markets (AFP Photo/WANG ZHAO)

Tesla on Tuesday revealed plans to build a factory in Shanghai that would dramatically increase its notoriously constrained production capacity, with boss Elon Musk making his electric-car company's biggest overseas move yet just as a US-China trade battle heats up.

Musk said the plant, whose plans have been in the works for a year, would eventually have an annual production capacity of 500,000 cars, adding that he hoped it would be "completed very soon."

Tesla has been looking to expand into global markets, plans that faced a potential threat from intensifying trade frictions and US President Donald Trump's push to keep manufacturing jobs at home.

A joint announcement released by Shanghai's government said a preliminary agreement had been signed to build the plant in the commercial hub's Lingang district.

"Shanghai will be the location for the first Gigafactory outside the United States," Musk was quoted saying.

"It will be a state-of-the-art vehicle factory and a role model for sustainability. We hope it will be completed very soon."

A Tesla spokesperson said "we expect construction to begin in the near future, after we get all the necessary approvals and permits."

It would take roughly two years before production begins and then up to three more years before it reaches full production.

"Tesla is deeply committed to the Chinese market, and we look forward to building even more cars for our customers here," the spokesperson said.

"Today's announcement will not impact our US manufacturing operations, which continue to grow."

- Pulling the trigger -

Shanghai will provide full support to Tesla in a project combining manufacturing, research and development, and sales and which is aimed at super-charging electric-vehicle development in the city, the local government said.

Anticipation about a potential big Tesla investment had bubbled over the past year.

Tesla last month told shareholders that it was working with officials in Shanghai on establishing the plant, which would build electric cars and battery packs.

At the time, Musk told employees the electric carmaker was being reorganised to speed up production of Model 3 vehicles -- a key to profitability at the fast-growing firm.

China has emerged in recent years as the world's largest market for electric vehicles.

Expectations of an impending announcement spiked after Bloomberg News earlier reported that Musk would travel to Shanghai on Tuesday, followed by a visit to Beijing.

The factory move could allow Tesla to avoid having Musk's expansion plans tripped up by the mushrooming trade frictions.

Following months of tension, start-stop negotiations and some Chinese concessions, the US on Friday pulled the trigger on 25 percent duties on about $34 billion in Chinese machinery, electronics and high-tech equipment, including autos, computer hard drives and LEDs.

Trump has for years slammed what he describes as Beijing's underhand economic treatment of the United States, with the US trade deficit in goods with China ballooning to a record $375.2 billion last year.

The move triggered immediate and similar retaliatory tariffs by China -- perhaps heightening Tesla's urgency in reaching a deal with Shanghai.

The joint announcement said "Tesla plans to construct and operate a wholly-owned" factory in Shanghai.

China typically requires that foreign automakers set up joint ventures with Chinese firms when establishing auto manufacturing plants.

China is both the world's largest car market and its biggest electric-vehicle market.

Domestic Chinese and foreign automakers have been racing to grab a piece of the sector, which is expected to continue to grow rapidly as the government pushes cleaner technologies, partly to help combat chronic air pollution.