Tesla CEO says could start China car production in 2 years

* Local production could slash retail prices by a third - Musk

* Already in talks with officials on local partnership (Adds new Tesla, Musk comments)

By Jake Spring

SHANGHAI, Oct 23 (Reuters) - Tesla Motors Inc could begin producing cars in China in two years, Chief Executive Elon Musk said, adding that local production had the potential to slash the sales prices of its models in the world's largest auto market by a third.

Tesla's negotiations with officials on Chinese production have been quite encouraging and it is likely the company will cooperate with a local partner, Musk said, according to Chinese language transcripts of remarks made Thursday and Friday that were provided by the company.

Foreign automakers are generally required to establish a joint venture with a Chinese company to produce cars domestically.

The California-based automaker has struggled with weak sales in China, leading to job cuts this year. Domestic media has put the headcount reduction at 30 percent of its 600 staff.

The company, which does not regularly release China sales data, said in a release on Friday that it had sold 3,025 Model S cars in the country from January to September.

Musk also said Tesla is already working with Chinese Internet company Baidu Inc on GPS navigation and automated driving.

He added that Tesla's giant $5 billion battery plant in Nevada, known as the "gigafactory" would produce its first batch of batteries next year, estimating that the plant would reach full capacity in two to three years.

(Reporting by Jake Spring and Beijing newsroom; Editing by Edwina Gibbs)