Tesla signs a deal to build auto plant in China

Tesla Inc CEO Elon Musk on Tuesday landed a deal with Chinese officials to construct a new auto plant in Shanghai, its first factory outside the United States, that would double the size of the automaker’s worldwide manufacturing.

The deal was announced as Tesla increased prices on U.S.-made vehicles it sells in China to offset the price of new tariffs imposed by the Chinese government in response to U.S. President Donald Trump’s heavier duties on Chinese goods.

Musk was in Shanghai Tuesday, and the Shanghai government stated it welcomed Tesla’s move to invest not only in a new factory in the city, a center of the Chinese vehicle industry, but also in research and development. China has long urged to capture more of the talent and capital invested by worldwide automakers in advanced electric vehicle technology.

Tesla prepares to produce the first vehicles about two years after construction starts on its Shanghai factory, ramping up to as many as 500,000 automobiles per year about two to three years later, the company stated.

That would make Tesla’s Shanghai plant huge by auto industry standards, where most factories are tooled to construct 200,000 to 300,000 vehicles per year, and roughly same as the planned yearly production at Tesla’s plant located in Fremont, California.

Tesla shares increased 1.5 percent in U.S. trading even as some analysts asked where the money-losing company will get the capital needed to build and staff such a large plant.

Musk has stated Tesla will be cash-flow positive in 2018. Experts have predicted it will boost capital to fund a list of new projects, consisting the launching of an electric semi truck, a pickup truck, a compact SUV and new battery and vehicle production centers that Musk has proposed for China and Europe.

“I am sure that Tesla needs fresh money at the new next year,” stated Frank Schwope, an analyst with NORD/LB.

The Shanghai government said it could assist some of the capital costs. “The Shanghai municipal government will fully support the construction of the Tesla factory,” it stated.

Tesla stated Tuesday’s announcement will not affect U.S. manufacturing operations, which are growing.