Tesla on Monday broke ground on its first production factory in Shanghai, a move that comes amid an ongoing trade dispute between the U.S. and China.
The Shanghai plant will focus on producing “affordable versions” of Tesla’s Model 3 electric sedan the and Model Y SUV, founder Elon Musk wrote on Twitter. All other models will continue to be made in the U.S.
“China is becoming the global leader in electric vehicle adoption, and it is a market that is critical to Tesla’s mission to accelerate the world’s transition to sustainable energy,” Musk said in a statement issued alongside a ground-breaking ceremony in Shanghai, according to CNBC.
The launch of the company’s first Chinese factory will allow Tesla to tap into the world’s most lucrative automotive market at a time when carmakers are suffering from uncertainty due to President Trump’s double-digit tariffs on steel and aluminum imports into the U.S.
Creating the vehicles locally could allow Tesla to avoid the new U.S. tariffs, which cost the Palo Alto-based company $50 million in the third quarter of 2018. Tesla is planning to eventually produce up to 500,000 vehicle per years in the facility.
The Trump administration and China have restarted talks toward a broader trade deal to address long-standing issues like Beijing’s threat of intellectual property.
Should an agreement not be reached, the White House has said it will raise tariffs on the existing $200 billion worth of Chinese goods from 10 percent to 25 percent, and hit another $267 billion worth of Chinese products with new tariffs.
