Tesla broke ground on a new manufacturing plant in Shanghai on Thursday, just weeks after CEO Elon Musk made a surprise visit to China to boost the carmaker’s

declining sales.

Announced in April last year, the factory aims to begin production in the first quarter of 2025. It will have the capacity to produce 10,000 Megapacks annually—large batteries designed to store substantial amounts of electricity—according to a statement by Lingang Group, the government-owned developer of the area hosting the plant.

The battery facility will be situated near Tesla’s Shanghai Gigafactory, the company’s largest plant outside the United States, which produces nearly one million cars annually.

Megapacks are intended to help stabilize energy grids, with each unit capable of storing enough energy to power 3,600 homes for one hour, according to Tesla. These batteries are designed for deployment by utilities and power stations.

The $200 million project comes amid rising geopolitical and trade tensions between Beijing and Washington, highlighting Tesla’s ongoing commitment to China, the world’s largest electric vehicle (EV) market and Tesla’s primary vehicle export hub.

“For Tesla, it’s an important milestone,” said Tom Zhu, senior vice president of Tesla, in an article posted on the Shanghai government website on Friday.

Rising Tensions

While many Western companies face increasing barriers to doing business in China, Tesla’s operations have been relatively smooth.

Shanghai reported that it took only a month for both sides to negotiate and finalize the deal for the new factory near Tesla’s Gigafactory. The company similarly expedited the construction of its first factory in 2019.

Wu Xiaohua, a Shanghai government official, stated at the commencement ceremony on Thursday that the city would support Tesla in completing the construction and initiating operations “as soon as this year.”

During his visit in late April, Musk met with Chinese premier Li Qiang, who praised Tesla as a “successful model” for US-China collaboration.

Beijing is intensifying efforts to accelerate EV production to counter a property-induced economic slowdown and promote a low-carbon economy. However, as domestic demand weakens, Beijing is also encouraging manufacturers to explore overseas markets for growth.

This places the industry at the center of growing trade tensions with the US and Europe.

Trade Disputes

Earlier this month, President Joe Biden announced that tariffs on $18 billion worth of imports of Chinese EVs and other products would significantly increase over the next two years. EVs imported from China will see their tariffs nearly quadruple from 27.5% to 100%, a move aimed at challenging Beijing’s practice of promoting aggressively low pricing by domestic EV manufacturers while imposing a 40% tariff on US car imports.

The White House stated that these measures are designed to protect American workers and businesses from China’s unfair trade practices, including “flooding global markets with artificially low-priced exports.”

In January, Musk warned that Chinese EV makers could outcompete their rivals unless tariffs were raised. “Frankly, I think if there are not trade barriers established, they will pretty much demolish most other car companies in the world,” Musk told analysts on an earnings call.

However, at a tech conference in Paris this week, Musk expressed opposition to market-distorting measures. “Neither Tesla nor I asked for these tariffs; in fact, I was surprised when they were announced,” Musk said via video link at VivaTech 2024, according to Reuters. “Tesla competes quite well in the market in China with no tariffs and no differential support. I’m in favor of no tariffs,” he added. Photo by Windell Oskay from Sunnyvale, CA, USA, Wikimedia commons.