The new plant near Shanghai will be Tesla’s first outside the United States (SAUL LOEB)

Shanghai (AFP) – Tesla boss Elon Musk said the electric car-maker would break ground Monday on a Shanghai factory that will allow it to sell direct to Chinese consumers and avoid tariffs from the China-US trade war.

Tesla unveiled plans in July for what is Musk’s biggest overseas move yet, saying the factory’s eventual annual production of 500,000 vehicles would dramatically increase its output and allow more direct access to the world’s biggest electric-vehicle market.

“Looking forward to breaking ground on the @Tesla Shanghai Gigafactory today!” Musk said on his official Twitter account.

“Aiming to finish initial construction this summer, start Model 3 production end of year & reach high-volume production next year.”

Chinese media reports said Musk would be in Shanghai to break ground on the plant, which Bloomberg News has reported could cost $5 billion.

A Tesla spokeswoman told AFP she was not authorised to confirm Musk’s attendance or provide other details until later Monday, after the ceremony.

Musk said the Shanghai plant would supply the “Greater China region” with “affordable versions” of the Tesla Model 3 — the carmaker’s first mid-price, mass-market vehicle — and its planned Model Y.

The Model S, Model X and “higher cost versions” of the 3 and Y would continue to be made in the United States for the global market, including China, he added.

Despite its relative affordability compared to other Tesla models, the price of a US-made Model 3 now starts at about $50,000, but Musk has said previously that he aims to get that down to $35,000. He provided no price figures for China-made cars.

Tesla’s Shanghai venture comes as US companies face pressure from President Donald Trump to keep manufacturing jobs at home, and as Beijing and Washington persist with a trade spat that has seen both sides levy tariffs on hundreds of billions of dollars of products.

Analysts have said production in China would allow Tesla to avoid such tariffs, which already have caused a spike in the price of the cars that Tesla now imports to the Chinese market.

But since Tesla announced plans for the factory on land outside Shanghai’s urban core, the outlook for China’s consumer market has turned worrisome.

Apple sparked global alarm over the prospects for the world’s second-largest economy last week when it cut its revenue forecast citing slowing demand in China and the trade war.

Domestic and foreign automakers have been racing to grab a share of the electric-vehicle sector, which is expected to continue to grow rapidly as the Chinese government pushes cleaner technologies, partly to help combat chronic air pollution.

The Shanghai factory will be Tesla’s first production line outside the United States.

China typically requires foreign automakers to set up joint ventures with domestic firms when establishing manufacturing plants, which entails the sharing of profits and technology with local partners. 

But Tesla has said its Shanghai plant will be “wholly-owned” by the company.

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