Tesla secures Shanghai site for $2 billion China Gigafactory China 17:47

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The signing of the agreement for the land comes three months after Tesla announced it would establish a factory in Shanghai with an investment of US$5 billion.

Tesla, based on Palo Alto, Calif., announced plans for the Shanghai factory in July after the Chinese government said it would end restrictions on full foreign ownership of electric vehicle makers to speed up industry development.

Those plans have gone ahead despite US-Chinese tensions over Beijing's technology policy.

The land agreement marks a key step toward the firm and its Chief Executive Elon Musk making cars locally in China for the fast-growing market, even as tariffs imposed by Beijing on USA -made goods have caused it to hike prices of its imported models.

Tesla on Wednesday secured a 860,000 square metre piece of land in Shanghai, in another step towards building its first plant outside the United States.

At present, it appears that the auto made in this facility will be sold within the Chinese market, however, cheaper manufacturing costs in China would make sense for Tesla to further expand capacity and start exporting cars as well.

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Shanghai is a centre of China's motor industry and home to state-owned Shanghai Automotive Industries, the main local manufacturer for GM and VW.

[It is] An important milestone for what will be our next advanced, sustainably developed manufacturing site.

"Taking ocean transport costs and import tariffs into account, Tesla is now operating at a 55 percent to 60 percent cost disadvantage compared to the exact same vehicle locally produced in China", the company said. Tesla claims it will then take a further "two to three years [after opening] before the factory is fully ramped up". CEO Elon Musk said in a September 30 letter to US securities regulators that the company is "very close to achieving profitability".

The location of the Chinese Gigafactory was set as Shanghai because it has a free-trade zone, which means there's no need to partner with a local Chinese company before manufacturing can begin.

Lower-priced electric models from GM, Volkswagen and other global brands are due to hit the market starting this year, well before Tesla is up and running in Shanghai.

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