Tesla in Car Talks With China

Electric carmaker Tesla Inc. reaffirmed on Sunday it is talking with the Shanghai Municipal Government to set up a factory in the region and expects to agree on a plan by the end of the year, but declined to comment on a report that a deal has been reached.

China levies a 25% duty on sales of imported vehicles and has not allowed foreign automakers to establish wholly owned factories in the country.

This poses a problem for Tesla, which wants to expand its presence in China’s growing electric vehicle market without compromising its independence or intellectual property, Automotive News reported.

The Chinese government has considered allowing foreign automakers to set up wholly owned factories in free trade zones, in part to encourage more production of electric and hybrid vehicles.

Tesla would still have to pay a 25% duty on cars built in a free trade zone, but it could lower its production costs. On Sunday, it pointed to a statement made in June that the company “is working with the Shanghai Municipal Government to explore the possibility of establishing a manufacturing facility in the region to serve the Chinese market. As we’ve said before, we expect to more clearly define our plans for production in China by the end of the year”.

The automaker is wrestling with production problems at its sole factory, in Fremont, Calif. It is trying to accelerate output of its new Model 3 sedan, but conceded earlier this month that production bottlenecks had held third-quarter production to just 260 vehicles, well short of the 1,500 previously planned.