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Tesla has secured the rights to about 210 acres of land in Lingang, Shanghai, the site of the electric automaker’s planned factory and its first outside of the U.S.
Tesla executives and leaders of the Shanghai Economics and Information Committee, Shanghai Lingang Area Development Administration and Shanghai Lingang Group witnessed the agreement-signing ceremony in China on Wednesday.
“Tesla’s mission is to accelerate the world’s transition to sustainable energy not only through all-electric vehicles, but also scalable clean energy generation and storage products,” Robin Ren, Tesla’s vice president of Worldwide Sales said in a statement. “Securing this site in Shanghai, Tesla’s first Gigafactory outside of the United States, is an important milestone for what will be our next advanced, sustainably developed manufacturing site.”
The land transfer marks an important step for Tesla, which recently said rising costs had prompted the company to accelerate construction of its so-called Gigafactory 3. Tesla warned in its production and delivery report in early October that tariffs, combined with the cost of shipping its vehicles via ocean carrier and the lack of access to cash incentives available to locally produced electric vehicles, has put the company at a disadvantage in China.
Tesla reasserted those statements Wednesday, noting that it expects the project to be a “capital efficient and rapid buildout, using many lessons learned from the Model 3 ramp in North America.”
Tesla reached a deal in July with the Shanghai government to build a factory that it says will be capable of producing 500,000 electric vehicles a year. Once construction begins, it will take about two years until Tesla can produce vehicles. It will be another “two to three years before the factory is fully ramped up to produce around 500,000 vehicles per year for Chinese customers,” a Tesla spokesman said at the time.
The Shanghai factory deal marks a shift within the Chinese government to allow foreign companies to build and operate wholly owned facilities there. Foreign companies have historically had to form a 50-50 joint venture with a local partner to build a factory in China.
Chinese President Xi Jinping has said the country will phase out joint-venture rules for foreign automakers by 2022. Tesla is one of the first beneficiaries of this rule change.
The agreement allows Tesla to construct and operate a wholly owned factory in Lingang. The new factory will carry out research and development, manufacturing and sales operations.
The Chinese government will still be involved, however. Under a cooperation agreement, the Shanghai government and Tesla will jointly promote electric vehicle technology and industry development. The city of Shanghai said it will provide support for Gigafactory 3, although details are thin as to what that might mean.