Tesla makes massive bet on China with new 500,000-car Shanghai factory

Enlarge / Elon Musk unveiled the Model X back in 2015. (credit: David Paul Morris/Bloomberg via Getty Images)

Tesla CEO Elon Musk, currently traveling in Asia, signed an agreement Tuesday with officials in Shanghai to build a factory with the capacity to produce up to 500,000 vehicles per year. Shanghai officials describe it as the largest foreign-funded manufacturing project in Shanghai history.

The deal comes in the midst of an increasingly bitter trade war between the United States and China. A 25 percent Chinese tariff on US-made cars recently forced Tesla to raise the Chinese price of the Model S and Model X. Having a Chinese factory would help Tesla avoid these taxes, as it could manufacture cars in China and then sell the cars directly to Chinese consumers—or to customers in Asian countries with good trade relationships to China.

Tesla’s China project was first reported by Bloomberg. A Tesla spokesperson confirmed the news to Ars Technica.