Tesla gets the go ahead to build its first factory in China

Tesla has sealed an agreement with the regional government in Shanghai to construct its first automobile factory outside the United States.

Chief Executive Officer Elon Musk arrived in the city this week to ink the deal alongside local Mayor Ying Yong.

A Shanghai branch has been set up with an initial injection of $15 million to kick-start work on the company’s second ‘Gigafactory’ as well as a new research & development unit.

After a two-year construction period, Tesla is hoping to ramp up production of electric vehicles in China to 500,000 a year; it currently imports up to 15,000 for sale in the world’s largest electric vehicle market.

Volkswagen inaugurated its own factory near Hong Kong last month, in a bid to win a share of the booming EV market.

“Shanghai welcomes Tesla to put its entire industry chain of research and development, manufacturing and sales of electric cars in the city,” Mayor Ying said.

Tesla posted significant losses at the start of 2018 and was recently forced to lay-off 9 percent of its workforce in the United States. As a result, some of the money for this new plant will come from the regional authorities.

“The government will fully support the construction of Tesla’s factory, and create a better business environment…,” added Ying.

“I sincerely hope Tesla’s Gigafactory will be built as soon as possible and make a contribution to Shanghai’s development,” Musk said, according to a government source.

Tesla has also been forced to increase prices on a number of its models in response to the growing trade war between the US and China. After President Trump announced tariffs on Chinese goods, Beijing hit back with a 40 percent import duty on US-made cars.

This has forced Tesla to raise the price of its Model S sedan to 850,000 yuan ($127,000), up from 710,000 yuan (106,000) in May. Its Model X sport-utility is also up from 775,000 yuan ($116,000) to 927,000 yuan ($139,000).