Shanghai (ZXZC)- Tesla will start to make vehicles in its Shanghai plant in 2020. The initial stage will only see the production of Model 3, whose price is expected to be less than RMB 300,000, according to a local media report.

On July 10, Tesla reached an agreement with Shanghai Lingang Area Development Administration and Lingang Group to build a new auto plant in Shanghai, the American automaker’s first factory outside the United States. With an expected annual capacity of 500,000 vehicles, the plant will perform various functions, such as R&D, manufacturing, sales. The scale and construction of Tesla’s Shanghai factory, covering a total area of 1.72 square kilometers, is better than that of its American factory, a people attending the negotiation said.

Elon Musk, CEO of Tesla, revealed during the company's second quarter earnings call on the first day of August, the new factory in China will be funded with a loan from a local bank. Besides, Tesla also posted its recruitment announcement via its Wechat account for the factory in China, including engineering and construction posts.

As to the reason why Tesla located its factory in Shanghai, Yang Zao, chief analyst on new energy business from TF Securities, pointed out the Yangtze River Delta region boasts the most sophisticated supply chain and obvious advantages over other regions in power battery, material, and auto parts. Many famed suppliers, such as CATL, Lishen Battery, Shanshan Corporation, have set up production bases in the region.

Relevant government policies may be another factor for the location decision. From 2014 when Tesla tapped into Shanghai market, the government has issued 6,000 free license plates for Tesla vehicles. It only took the government a week to build charging piles, which impressed Elon Musk a lot.