After months of speculation, Tesla to open a plant in Shanghai

Novitec Tesla Model X

It’s official. Tesla is going to China. On Sunday, October 22, the Wall Street Journal reported that the car company had reached a deal to open a manufacturing plant in Shanghai. The demand in the Asian market for electric vehicles has driven much of the industry’s growth this year, and Tesla’s new deal could help the company establish a foothold in a crucial market.

According to the Journal’s sources, the agreement with the Shanghainese government will allow Tesla to “build a wholly owned factory in the city’s free-trade zone.” This marks the first such deal granted to a foreign car company, and could be hugely beneficial in helping Tesla to cut production costs. That said, the firm would still likely be forced to reckon with a 25-percent import tariff.

When reached for comment, Tesla only restated the company’s previous position, noting that Tesla has plans to “clearly define” production plans in the Asian nation by the end of 2017, and that the company “is working with the Shanghai Municipal Government to explore the possibility of establishing a manufacturing facility in the region to serve the Chinese market.”

Tesla certainly looks to be in desperate need of more factories and production plants, as the company is currently facing rather serious bottlenecks that appear to be significantly impacting the on-time delivery of its highly anticipated Model 3 sedans. While 400,000 of these vehicles have been pre-ordered, only a tiny fraction have been produced and distributed.

Separately, the Journal noted that having a a presence in China could help improve the company’s relationship with that government. As Michael Dunne, an auto industry consultant told the publication, having Teslas built in China would be seen in a positive light by the nation’s officials, and “in turn, will give Tesla goodwill leverage to negotiate better China market-access terms in the future.”

Tesla’s own leader, Elon Musk, has long signaled not only an interest, but a need for vehicle and battery manufacturing plants outside of the United States, and specifically in Europe and Asia. And as per these latest reports, it looks like Musk’s vision is one step closer to becoming a reality.