Tesla Gets OK to Build Factory in China

Tesla Inc. has agreed to spend 973 million yuan ($140 million) for land in Shanghai on which to build a factory with eventual annual capacity to make 500,000 electric cars—and the batteries to propel them.

The 210-acre site, dubbed Gigafactory 3, will produce Tesla’s Model 3 sedan and upcoming compact Model Y crossover vehicle. The first phase of construction, which will result in a facility with capacity to build 250,000 vehicles per year, is expected to cost nearly $2 billion.

Tesla hasn’t said when the facility would begin operation. But it says it will use lessons learned from the messy U.S. production launch of its Model 3 EV over the past 14 months to speed the process. CEO Elon Musk said in August that Tesla would begin making cars in China in about three years.

Under China’s new rules, Tesla will be allowed to fully own the complex, the company’s first such facility outside the U.S. Doing so will enable the company to avoid the 25% import tax China levies on cars imported from Tesla’s home assembly plant in Fremont, Calif.

Tesla aims to find local investors to help bankroll the Shanghai complex, whose eventual cost could reach $5 billion, a source tells Bloomberg News. Sales of electrified vehicles, which includes hybrids, are forecast to reach 1 million units in China this year.