Elon Musk Finalizes Agreement with China for Massive Tesla Factory

A row of new Tesla Model 3 electric vehicles is seen at a parking lot in Richmond California

The move could help cement the brand in China and circumvent steep tariffs on the cars.

A plant in China would not only allow Tesla to cut vehicle manufacturing costs significantly but also to set up battery production, taking advantage of the proximity of China's massive mining and battery-production operations. Musk signed what was called a "cooperative agreement" with the Shanghai Municipal People's Government to jointly work on building the plant, which a Tesla spokesperson called "Gigafactory 3".

The automaker has reached a preliminary agreement with the government of Shanghai - the city is an automaker hub - to build a factory with a capacity to produce 500,000 vehicles a year, Bloomberg reports. The vehicle, after all, gives Tesla healthy profit margins, considering that it starts at a price of $64,000 before add-ons.

The signing ceremony was attended by Tesla chairman Elon Musk, Mayor Ying Yong and other Chinese officials, according to the city government.

While Tesla has been working on setting up production in China for more than a year, President Donald Trump has been trying to bolster manufacturing in the U.S. Tesla follows Harley-Davidson Inc.in expanding outside the U.S., underscoring the urgency with which companies are moving to avoid damage from escalating trade disputes.

Tesla did not respond to a Reuters request for comment.

He added that Tesla could lose market share to Chinesecompetitors, such as NIO, as a result.

A woman sits in a Tesla Model 3 vehicle at the Auto China 2018 motor show in Beijing on April 25, 2018.

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Tesla's price increases come as it plans to build a factory in Shanghai to serve the Chinese market.

While Musk, 47, said in May 2016 that he expected Tesla would produce 500,000 vehicles a year by 2018, the company has repeatedly fallen short of his manufacturing goals with the Model 3 sedan.

At the top of the range, the most expensive Model X crossover is now 1.57 million yuan ($240,000) up from about 1.32 million ($200,000) before.

The Associated Press reports this announcement comes on the heels of growing trade tension between the USA and China, and Beijing's decision to stop restrictions on requiring outside automakers to work through locally-based joint ventures. The company ships more than 15,000 cars a year to China.

Tesla hiked prices in China over the weekend to a level more than 70 percent higher than in the United States amid mounting trade frictions between Washington and Beijing that have seen several US imports, including cars, become subjected to retaliatory tariffs of 25 percent.

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

Musk had previously criticized China's tough auto rules for foreign businesses, which would have required it to cede a 50-percent share in the factory. Electrek also says stores will get Performance Model 3 vehicles by the end of the month.

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

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