Tesla makes massive bet on China with new 500,000-car Shanghai factory

Enlarge / Elon Musk unveiled the Model X back in 2015. (credit: David Paul Morris/Bloomberg via Getty Images)

Tesla CEO Elon Musk, currently traveling in Asia, signed an agreement Tuesday with officials in Shanghai to build a factory with the capacity to produce up to 500,000 vehicles per year. Shanghai officials describe it as the largest foreign-funded manufacturing project in Shanghai history.

The deal comes in the midst of an increasingly bitter trade war between the United States and China. A 25 percent Chinese tariff on US-made cars recently forced Tesla to raise the Chinese price of the Model S and Model X. Having a Chinese factory would help Tesla avoid these taxes, as it could manufacture cars in China and then sell the cars directly to Chinese consumers-or to customers in Asian countries with good trade relationships to China.

Tesla's China project was first reported by Bloomberg. A Tesla spokesperson confirmed the news to Ars Technica.

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