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Tesla hopes to produce 500,000 cars per year at new Shanghai plant

The California-based automaker has been trying to plant its feet in The Middle Kingdom for more than a year.

Shanghai Municipal People’s Government

China is an important market to Tesla, and having to deal with import-export tariffs and subsequent price hikes only makes the market more difficult to penetrate. That's part of the reason why it's excited to set up an actual factory over there.

Tesla and the Shanghai government have reached a preliminary agreement to establish a Tesla factory over there. The automaker hopes to eventually build some 500,000 vehicles per year at its Shanghai plant. In a statement, the Shanghai government noted that this is the largest foreign-invested manufacturing project in the city's history.

Tesla will be capable of producing about 1 million cars per year if both its Shanghai and Fremont factories reach their theoretical maximum outputs in the future.

Shanghai Municipal People's Government

"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. "We expect construction to begin in the near future, after we get all the necessary approvals and permits. From there, it will take roughly two years until we start producing vehicles and then another two to three years before the factory is fully ramped up to produce around 500,000 vehicles per year for Chinese customers. Tesla is deeply committed to the Chinese market, and we look forward to building even more cars for our customers here."

"We are glad to achieve strategic cooperation with Tesla, and we welcome Tesla's R&D, manufacturing and operations of pure electric cars in Shanghai," said Ying Yong, Shanghai's mayor, in a separate statement. "The Shanghai Municipal Government will give full support to the construction of Tesla's factory and strive to create a better environment and provide better services for the development of various enterprises in Shanghai, including Tesla."

In response to tariffs between the US and China, Tesla had to hike prices of its already-very-expensive Model S and Model X vehicles. A base Model X now costs $140,100, a price hike of $20,000 and a whole lot more than the $79,500 it costs in the US. This huge price disparity can hopefully be remedied by moving Chinese-market vehicles to China. Until the Shanghai plant is online, though, Chinese buyers will have to make do with the prices as they are.

Elon Musk in 2016 had originally hoped to be building 500,000 Teslas per year out of its Fremont, California facility by 2018, but it's currently on target to produce closer to 170,000. There have been more than a few hurdles in getting Model 3 production online, but as the kinks are smoothed out, those numbers should keep rising.