Tesla Secures Land in China for First Car Plant Outside U.S.

(Bloomberg) -- Tesla Inc. agreed to pay 973 million yuan ($140 million) to use land for a factory in China, its first outside the U.S.

The electric-vehicle maker won a bid to use more than 210 acres for its ‘Gigafactory 3’ in Shanghai, Tesla said in an emailed statement. The land use agreement is for 50 years, according to a Shanghai government website.

The China foray is the next chapter in Tesla’s growth story and the result of Chief Executive Officer Elon Musk’s efforts to gain entry into the Asian country. A local production facility, the nation’s first to be fully owned by a foreign carmaker, is crucial for Tesla to sidestep tariffs sparked by the Trump administration’s trade war. Mainland China is Tesla’s largest market after the U.S.

The carmaker said it will use “many lessons learned” from ramping up production of its Model 3 to accelerate construction of the sprawling battery factory, where it plans to build the sedan along with the new compact sport-utility vehicle dubbed Model Y. Tesla will also manufacture batteries at the plant.

In July, the EV pioneer reached a preliminary agreement with Shanghai authorities to build a factory to eventually produce 500,000 battery-powered vehicles annually -- more than what its lone U.S. assembly plant has made.

The unprofitable carmaker is considering raising some of the $5 billion it intends to invest in the plant in Shanghai from local partners, a person familiar with the plans said about three months ago. Musk said the cost for the factory to build 250,000 vehicles a year would be near $2 billion.

China’s fast-growing market for new-energy vehicles presents a growth opportunity for Tesla. The category -- which includes battery-powered, plug-in hybrid and fuel-cell automobiles -- reached 777,000 units last year and could surpass 1 million sales in 2018, according to the China Association of Automobile Manufacturers. The government’s target is 7 million vehicles a year by 2025.

©2018 Bloomberg L.P.