Tesla Reaches Deal To Build Factory In China

Tesla cars will soon be made in China after the company reached an agreement with Shanghai's government to build a manufacturing plant in the city's free-trade zone.

According to the Wall Street Journal, Tesla will own the factory, rather than partner with a local manufacturer, as it typically the case with foreign companies in China. Chinese officials began considering loosening the stringent rules concerning local partners, as a way to encourage electric vehicle manufacturers.

The arrangement is the "first of its kind for a foreign automaker," but will likely not exempt Tesla from a 25 percent import tariff. Nevertheless, the move could potentially give the automaker a unique edge in the world's largest market for electric vehicles as it could drastically cut costs of Tesla vehicles sold in China.

The company has been eyeing a factory in China for years but it was not until June that the deal with Shanghai came into focus. This was following the announcement that Telsa sold $1 billion worth of cars in China in 2016 and that Tencent Holdings, a technology giant in China, had invested a considerable amount in the company.

However, considering the hurdles they have to face in China, the company needs all the help it can get. Currently, a Tesla sells for around 50% more in China than in the US. By establishing a factory in Shanghai's free-trade zone would reduce labor and transportation costs for each vehicle. CEO Elon Musk himself said that a factory in China could cut the price of vehicles sold in China by up to a third.

The deal is as vital for Tesla as it is necessary to China which is currently pursuing total electrification of its vehicle fleet. However, many experts fear that China's reliance on "borrowed" Western technology could compromise not just Tesla but the development of clean vehicle technology as a whole.

Tesla has yet to issue a statement regarding its recent deal.