Tesla to build factory in Shanghai as auto makers push for new arrangements in China

Car makers including Tesla Inc. are stepping up in China amid trade-war concerns.

Following months of speculation, Tesla TSLA, +0.58% is now prepared to open a plant in China, the Shanghai city government announced Tuesday. Chief Executive Elon Musk appeared in China to commemorate the partnership and sign an agreement.

According to Tesla, the factory will take about two years to build, and it won’t reach its stated capacity of 500,000 vehicles a year for another two or three years. Still, the arrangement is notable, as Tesla will become the first foreign auto maker to open a wholly-owned factory in China and forego a joint-venture arrangement.

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Up until recently, the Chinese government required foreign companies to set up joint ventures with local partners if they wanted to build cars in the country. For foreign auto makers, that meant splitting the profits and exposing their technology to Chinese companies. The government relaxed those rules back in April.

“Tesla is deeply committed to the Chinese market, and we look forward to building even more cars for our customers here,” the company said in a statement.

Tesla already counts China as its second-largest market, but it will no longer have to pay import tariffs in the country once it’s able to sell cars to Chinese consumers that were actually made there. The company reportedly raised prices in China on the Model S and Model X over the weekend following the imposition of U.S.-China tit-for-tat tariffs on imported cars.

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Several European car makers announced new arrangements in China on Tuesday, though they are all working in conjunction with Chinese partners.

Germany’s BMW AG BMW, -0.02% for example, said that it would begin a joint venture with Great Wall Motor Co. Ltd. 2333, -4.84% in China to make electric Mini vehicles. Each company will have a 50% stake in the venture. The company also plans to work with Baidu Inc. BIDU, -0.71% on self-driving technology in China. Ford Motor Co. F, +0.22% and Daimler AG DAI, +0.38% are among the other companies partnering with Baidu for these efforts.

Audi AG NSU, +3.56% meanwhile, said it would partner with Huawei Technologies Co. on autonomous-driving projects, and Continental AG CON, +1.39%announced that it would work with Didi Chuxing, a Chinese ride-hailing service, on connected-car technology.

Tesla shares are up 2.6% over the past 12 months, while the S&P 500 SPX, +0.28% has gained 15%.

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