Tesla has announced plans to build a factory in Shanghai to produce its Megapack energy-storage system as CEO Elon Musk battles mounting opposition in Washington to US tech companies investing in China.
Tesla’s Megapack system provides lithium-ion battery packs for storing renewable energy for power grids and is a key driver of the energy storage and generation business.
The electric vehicle maker said at a signing ceremony in the Chinese city that construction of its new plant is scheduled for the third quarter of this year, with production scheduled to start in the second quarter of 2024.
Tesla expects the factory to produce about 10,000 Megapack units annually — the equivalent of about 40 gigawatt-hours of energy storage — reflecting Musk’s decision to deepen its involvement in China as its auto business struggles to fend off growing competition from Chinese rivals.
The US is expected to trial a new screening mechanism for investments in China soon. The requirement would be one strand in a broader set of new policies under President Joe Biden aimed at boosting American manufacturing and reducing US dependency on China for manufacturing and technology.
Musk previously pledged to expand its energy storage business to match the company’s auto manufacturing.
The new China investment comes at a tense moment for Musk’s relationship with clients in the world’s largest consumer market, as well as with China’s ruling Communist Party under President Xi Jinping.
Amid rising tensions between China and the West and concerns about supply chain disruption, some manufacturers are increasingly using manufacturing facilities in China for the local market rather than for export.
Tesla said products made at its new battery factory would be sold worldwide.
Tesla’s first Shanghai plant, which opened in 2019, produced nearly 90,000 units as of February, according to the China Passenger Car Association, and can produce about 1.1 million units annually.
Despite success in China — where Tesla gets about a quarter of its sales — the rise of domestic plug-in hybrid and EV challengers, including Warren Buffett-backed BYD, has seen Tesla lose market share.
While Musk is credited with playing a key role in boosting the electric vehicle supply chain, the tech entrepreneur has come under scrutiny from corners of the National Security Institute in Beijing over concerns about his commercial rocket and satellite company SpaceX.
These concerns deepened after Musk began deploying Starlink satellites to support Ukraine against invading Russian forces last year.
The billionaire has also been faced with questions about data security in China related to Tesla’s self-driving technology.
Musk is reportedly looking to partner with Chinese EV battery company Contemporary Amperex Technology Group to build EV batteries in Texas, a move that could give the Tesla supplier a major foothold in the U.S. market.