Tesla Motors has signed a preliminary agreement to build a factory in Shanghai which will be the company’s first factory in China. This move would put China on the map of the growing electric car industry. This decision to set up a factory in China is a move on Tesla’s part to produce more affordable cars for consumers. In China, imported cars are taxed heavily so the best way to reach that market is through setting up a factory in China’s borders.

A company spokesperson stated, “Tesla is working with the Shanghai Municipal Government to explore the possibility of establishing a manufacturing facility in the region to serve the Chinese market. Tesla is deeply committed to the Chinese market, and we continue to evaluate potential manufacturing sites around the globe to serve the local markets.While we expect most of our production to remain in the U.S., we do need to establish local factories to ensure affordability for the markets they serve.”

Chinese interest in Tesla has been growing recently. Consumers from China accounted for 15 percent of Tesla’s revenue in 2016 which is double the percentage from 2015.

Despite the signing of these preliminary agreements between Tesla and Shanghai, there is no guarantee the factory will be built. Tesla will need to find a Chinese joint-venture partner for the building to begin.

Speculation over what partner Tesla will choose has led many to believe that they could pick SAIC Motor Corporation, one of China’s largest automakers and a partner for General Motors and Volkswagen which is controlled by the City of Shanghai.

A way for Tesla to get around the joint-venture clause is to build a factory in a foreign trade zone in China. However, Tesla would be responsible for paying the 25 percent import tax for cars sold in China.

China has also recently stated that they will no longer issue business licenses to automobile makers. Tesla does not currently have a license so they would have to team up with a company that already has one.

Although having electric cars in China would reduce the country’s pollution and dependence on foreign oil. Having the cars produced in China could also bring down the cost of the car. As of now, the Tesla Model S ranges from 723,500 to 1,399,800 renminbi, or about $104,000 to $203,000 in China. The same model sells for $70,000 to $140,000 in the United States.

Featured Image Via Flickr/Sam Felder