Following a report last year that Tesla has received approval to build a factory in Shanghai, the company is setting up independent operations in China.
According to a Wall Street Journal report on Monday (subscription required), Tesla is the first automaker to take advantage of new Chinese laws that will allow foreign green automakers to open for business in the country without local ownership starting in 2022.
Previously, the Communist government required any foreign manufacturer to seek a local partner if it wanted to produce in China. This had given rise to concerns over technology piracy and patent infringement.
Rather than partner with a Chinese company, Tesla is currently selling cars in China that it exports from its factory in Fremont, California. These cars are subject to a 25 percent duty in China, which pushes their prices up 50 compared to Teslas sold in the United States.
If the company starts building cars in China, they would not face the import tariff or expensive shipping costs, which could bring prices down significantly.
China is a big market for electric cars, and the government has set quotas for electric car sales there. Cars with internal combustion engines will be banned in China at some point in the future, the government has announced, though it is not clear when that will be.
Tesla has said that with Model 3 production, its Fremont factory is "stuffed to the gills" and that it will need another factory before it can launch the Model Y, an SUV based on the Model 3. A Shanghai factory could provide the added production.
In a call with investors, Tesla CEO Elon Musk said that would open another Gigafactory in China, as early as the second half of 2018.