A Tesla factory in China

Report: Tesla reaches deal to build factory in China

United States electric carmaker Tesla has struck a deal with the Shanghai Government to build its first factory in China, representing a significant milestone in its attempts to establish a presence in the world's largest electric vehicle market. But the company has declined to comment on a report that says a deal has been reached.

China levies a 25% duty on sales of imported vehicles and has not allowed foreign automakers to establish wholly owned factories in the country, though it has moved to revise the rules for companies promising to build electric vehicles in China. Though the California-based electric vehicle company has yet to officially announce the grand opening of its "world's largest Supercharger station", Tesla's China-specific Supercharger map already lists the station as online and accessible 24 hours a day.

By being located within foreign free-trade zone, Tesla is able to negotiate special exemptions, although the vehicles could still have to pay steep tariffs like being treated as though they had been shipped from another country even though they were made in China.

The electric-car company said in June that it would "clearly define" its production plans in China by the end of the year.

Electric auto firm Tesla Inc (NASDAQ:TSLA) may well see its shares in focus on Monday after news at the weekend that the group has struck a deal with the Chinese government in Shanghai to build a production facility in the city's free-trade zone.

Chief executive of Automobility, a Shanghai-based consultancy and a formal Chrysler executive, Bill Russo said, "Whatever deal Tesla gets, others will want it too".

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Tesla is going worldwide, and it's reportedly headed to the world's biggest consumer of electric vehicles to build a new factory.

In March, Tesla won an investment worth $1.78 billion from Tencent Holdings, a major internet company with close ties to the Chinese government, to use as funding for its expansion in China.

More information on Tesla's manufacturing deal with Shanghai should become available in coming months.

China's home-grown manufactures now produce 43% of total vehicle sales in China but 96% of all-electric vehicles. For electric cars, that import tariff is set at 25 percent. What was not known until now is that Tesla will be the sole owner of the factory. The factory is to be set up in Shanghai's free-trade zone.

Local production would make it easier for Tesla to access China's auto-parts supply network and engineering talent pool at lower costs, accelerating sales growth and helping it compete with BYD Co. In 2016, 507,000 electric vehicles and plug-in hybrid electric vehicles were sold in China, a 53 percent increase on the previous year.

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