Tesla Is Close to a Deal to Build Its Second Plant In China, The World’s Largest Electric Vehicle Market

July 10, 2018, 12:42 PM UTC

Tesla appears to be one step closer to making cars in China.

The electric carmaker could soon sign a deal with Chinese officials to build a factory in Shanghai—its second in the world. The Shanghai factory could produce 500,000 vehicles a year, Bloomberg reports. To compare, the only operating Tesla factory, in Fremont, Calif., was producing about 1,000 cars a day late last month, the company said in a statement, though it has a target of 500,000 annual vehicles.

The company has been planning a Chinese factory for over a year, but on the report Tesla (TSLA) stock still rose 2.7% in premarket trading. The company has been negotiating for the factory to be wholly-owned, which would be a first for a foreign car manufacturer in China. Most foreign firms manufacture in China through joint-venture operations, such as BMW’s recently-announced plan to produce Minis in China.

Teslas cost more in China than in the United States due to tariffs that just climbed to 40% and additional shipping costs, and Tesla has increased the prices for Model S and Model X by between 150,000 yuan and 250,000 yuan because of the new tariffs. If, as the New York Times reported last year, Tesla builds its factory in a free-trade zone, it will still have to include tariffs in its pricing. But it may save on some local components.

China is also the largest market for electric vehicles in the world: sales could exceed 1 million vehicles this year, according to a trade group. Its usage last year exceeded all of Europe’s, with the U.S. placing third according to the IEA.