Tesla Breaks Ground On $5-Billion U.S. Car Factory In China

Tesla Inc. (NASDAQ: TSLA) has officially broken ground on a new $5-billion U.S. factory in China, the world’s largest automotive market.

The electric vehicle maker plans to complete construction of the plant this summer and start Model 3 production by the end of this year, according to Tesla Chief Executive Officer Elon Musk, who was in Shanghai for the ground breaking ceremony. The factory, which is located just outside Shanghai, will produce affordable versions of Tesla’s Model 3 and Model Y for Greater China.

The China plant is the result of years of negotiations with local authorities. A local Chinese plant could be crucial for Tesla, which is facing a drop in demand in the U.S., its biggest market, after reductions in federal tax credits for electric vehicles. The company cut the price of all its models by $2,000 U.S. to offset the loss of the American subsidy.

A fully owned facility in China means that Tesla doesn`t need to share its profits and technology with Chinese partners, unlike other foreign carmakers who are required by the government in Beijing to form a domestic joint venture.

Passenger car sales in China fell for six consecutive months through November, putting them on track for an annual decline. Tesla signed a preliminary agreement with the Shanghai government last year to build the 500,000-unit factory. In October of last year, the company paid about $140 million to secure more than 200 acres of land for the planned factory.

Tesla`s China factory is expected to churn out 250,000 vehicles annually in the first phase, and that capacity will double over time, the company said in a written statement issued on Monday. Tesla has said it plans to use mostly local debt to fund the factory`s construction.