Tesla breaks ground on $200 mn ESS plant in Shanghai, its first outside US

Company has also reportedly told EV suppliers to set up capacity outside China and Taiwan from next year

Tesla has broken ground in Shanghai on the company's first battery factory outside the US, Chinese state-owned media reported.

The Xinhua News Agency reported Tesla was setting up a plant to build 'Megapacks', the name of its utility-scale energy storage batteries, at Shanghai's Lingang pilot free trade zone at an investment of $200 million. The company plans to produce over 10,000 units of the energy storage systems a year, with mass production expected to start in the first quarter of 2025.

Tesla also landed its first customer for the Megapacks. The company signed a deal with Shanghai Lingang Economic Development Group after the groundbreaking to supply the first batch of the energy storage systems to roll out of the ~200,000 square meters large Shanghai Energy Storage Gigafactory.

Xinhua lauded Tesla's commitment to investing in China, pointing out that the company was "defying the rhetoric of 'decoupling' and 'de-risking' from China" at a time when Western nations are implementing tariffs on Chinese EVs and clean energy products. The company already runs a vehicle assembly plant in Shanghai, where it assembles cars for the Chinese and European markets. 

The EV company might be hedging its bets though. Japanese business newapaper Nikkei reported that Tesla had told suppliers for vehicles it sells outside China to build components and parts outside of China and Taiwan by as early as next year.

The request has been sent to suppliers of components such as printed circuit boards, displays and electronics control unit systems, the Nikkei reported, quoting six supply chain executives that were not identified.

News of Tesla's reported request comes days after founder and CEO Elon Musk told reporters he was not in favour of tariffs on Chinese EVs.

"Neither Tesla nor I asked for these," Musk responded when asked about the US decision to levy 100 percent tariff on Chinese EVs. "In fact, I was surprised when they were announced," Musk told a conference in France, where he was asked about the decision.

"Tesla competes quite well in the market in China with no tariffs and no deferential support," he said, adding he does not favour tariffs or tax incentives for EVs.

"I'm in favor of no tariffs and no incentives for electric vehicles, or for oil and gas," he said.