2014 Tesla Model S in China
In the midst of escalating trade wars, Tesla is moving ahead with its plans to build a factory in China.
The company announced on Wednesday that it signed a "land transfer" agreement with the Shanghai government for a 212-acre plot to build its proposed Chinese factory. The land transfer agreement opens the way for Tesla to start construction on the giant factory.
The Shanghai Bureau of Planning and Land Resources reported the land was sold at auction for $140.5 million.
Tesla CEO Elon Musk went to Shanghai in July to sign an agreement to build the factory, and the company said it expected the first cars to roll off the new Chinese assembly line in two years.
The factory will be the first in a new Shanghai free-trade zone that won't require automakers to pair up with local manufacturers whereby they would have to share technology and profits.
Tesla CEO Elon Musk (r.) and Shanghai Mayor Ying Yong in Shanghai July 10, 2018
Currently, Tesla sells Model S and Model X cars built at its California factory in China at about 50 percent higher prices, after paying Chinese tariffs on the cars.
According to a Reuters report on Wednesday, the cars Tesla builds in Shanghai will still be subject to the Chinese tariffs, since they're built in the free-trade zone, but the location will give Tesla access to cheaper labor and parts supplies to help lower prices.
Although the factory will build cars, not batteries, the company is calling it the Gigafactory 3 and says it will eventually produce 500,000 cars a year there for international markets.
China is the largest car market in the world and has announced plans to ban sales of non-electric cars at some unspecified future date. As one of the leading electric carmakers in the world, China is a key market for Tesla.