Tesla said to be in talks with Shanghai to make electric cars in China

Beijing

TESLA Inc is close to an agreement to produce vehicles in China for the first time, giving the electric-carmaker better access to the world's largest auto market, according to people familiar with the matter.

The agreement with Shanghai would allow Tesla to build facilities in its Lingang development zone and could come as soon as this week, said the people. Details are being finalised and the timing of the announcement could change. Tesla would need to set up a joint venture with at least one local partner under existing rules and it isn't immediately clear who that would be.

Setting up local production is key for CEO Elon Musk to continue growing in China, where Tesla's revenue tripled to more than US$1 billion last year. Assembling vehicles locally would allow the company to avoid a 25 per cent tax that renders Model S sedans and Model X sport utility vehicles more expensive than in the US.

China has identified new-energy vehicles as a strategic emerging industry and aims to boost annual sales of plug-in hybrids and fully electric cars 10-fold in the next decade. Government support helped China surpass the US in 2015 to become the world's biggest market for the non-emission autos.

Tesla's shares rose about 2 per cent in after-hours US trading. The stock has gained 73 per cent this year. Shanghai Lingang Holdings Co, a state-owned industrial zone developer and landlord, climbed as much as 8.7 per cent to a seven-month intraday high.

Bringing down the costs of electric cars is crucial to Mr Musk's ambitions to reach more mass market consumers. Next month, Tesla is slated to begin rolling out the Model 3, a more affordable and smaller electric sedan. Tesla has yet to launch the Model 3 in China. In the US, consumers stood in long lines to place US$1,000 deposits for the vehicle.

In March, Tencent Holdings Ltd, China's biggest Internet company, bought a 5 per cent stake in Tesla for US$1.8 billion. Teaming up with the owner of the WeChat and QQ messaging services could help the carmaker gain traction in a market where more than 200 companies have announced plans to build new-energy vehicles.

Tesla, which made roughly 80,000 cars in 2016, aims to boost it by about 7-fold to 500,000 annually by 2018. BLOOMBERG