UPDATE: Tesla Plans Huge Factory in China

Tesla Inc. hopes to open a wholly owned factory in Shanghai in less than three years that could make as many as 500,000 electric cars per year.

The company sign a memorandum of understanding today regarding the project. The facility, whose eventual capacity would be roughly twice that of a typical assembly plant, would enable Tesla to double its current output. The Shanghai government suggested that it may contribute funding for some of the capital costs involved.

CEO Elon Musk said in November that Tesla aims to make relatively inexpensive Model 3 electric sedans and upcoming Model Y small crossover vehicles in China. He indicated at the time that a factory in China also would supply other Asian markets.

China’s demand for electrified vehicles surged to 777,000 units last year and is expected to top 1 million units in 2018, according to the China Assn. of Automobile Manufacturers. The central government is targeting annual sales of 7 million hybrid and all-electric cars by 2025.

LMC Automotive estimates that Tesla sold 14,800 cars in China, all of them imported. This week China restored a 25% import tax on cars from the U.S. in retaliation for the 25% tariff the U.S. began on Friday that covers $34 billion in Chinese goods, including cars.