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Tesla in deal for land in China to build first overseas car plant

Beijing

TESLA agreed to pay 973 million yuan (S$193 million) to use land for a factory in China, its first outside the US.

The electric-vehicle maker won a bid to use more than 85 hectares for its Gigafactory 3 in Shanghai, Tesla said in a 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.

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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 US.

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 US assembly plant has made.

The unprofitable carmaker is considering raising some of the US$5 billion it intends to invest in the plant in Shanghai from local partners, a source has said. Mr Musk said the cost for the factory to build 250,000 vehicles a year would be near US$2 billion.

China's fast-growing market for new-energy vehicles presents a growth opportunity for Tesla. The category reached 777,000 units last year and could surpass 1 million sales in 2018, according to the China Association of Automobile Manufacturers. BLOOMBERG