Tesla is going worldwide, and it’s reportedly headed to the world’s biggest consumer of electric vehicles to build a new factory.
The Wall Street Journal reports that the electric car company has reached a deal to build a new facility in China that Tesla would fully own.
The move makes perfect sense for Tesla, which confirmed in June that it was in talks to open a factory in China.
“Tesla is deeply committed to the Chinese market, and we continue to evaluate potential manufacturing sites around the globe to serve the local markets,” the company said in a statement at the time. “While we expect most of our production to remain in the U.S., we do need to establish local factories to ensure affordability for the markets they serve.”
As Tesla tries to reach Elon Musk’s goal of producing 500,000 electric cars annually by the end of 2018, the company needs to expand its ability to actually build those vehicles. Its only factory in Fremont, California, has struggled to keep up with those production goals.
According to the Journal, Shanghai’s government has given permission to Tesla to build the factory in the city’s free trade zone, the first time that’s happened for a foreign car company. That will help Tesla cut down on production costs, but it likely would not allow the company to avoid China’s 25 percent tariff on imports.
“Tesla is working with the Shanghai Municipal Government to explore the possibility of establishing a manufacturing facility in the region to serve the Chinese market,” a Tesla spokesperson told Reuters. “As we’ve said before, we expect to more clearly define our plans for production in China by the end of the year.”
As the Verge notes, Tesla cars didn’t sell well in 2014, but by 2016, sales in China had skyrocketed to more than $1 billion. Wrote the Verge: “While the US is still Tesla’s largest market, China has vast potential thanks to the growing percentage of car ownership and the country’s effort to improve air quality and encourage sales of electric and hybrid vehicles.”