Tesla boosts China investment with plans for Shanghai battery factory

Tesla has announced plans to build a factory in Shanghai to produce its Megapack energy storage system, as chief executive Elon Musk resists rising opposition in Washington to US technology companies investing in China.

Tesla’s Megapack system provides lithium-ion battery packs to help store renewable energy for electricity grids and represents a key driver for its energy storage and generation business.

The electric-vehicle maker said at a signing ceremony in the Chinese city, that construction of its new plant was planned for the third quarter of this year, with production scheduled to begin in the second quarter of 2024.

Tesla expects the factory to produce about 10,000 Megapack units a year — equivalent to about 40 gigawatt hours of energy storage — reflecting Musk’s decision to deepen engagement with China just as his car business struggles to fend off growing competition from Chinese rivals.

The US is expected soon to release for trial a new screening mechanism for investment in China. The requirement would be one strand in a broad-based set of new policies under President Joe Biden aimed at boosting American manufacturing and cutting US reliance on China for manufacturing and technology.

Musk has previously pledged to expand the energy storage business to be on par with the company’s carmaking operations.

The new China investment comes at a tense moment for Musk’s relationship with customers in the world’s biggest consumer market as well as the ruling Chinese Communist party under President Xi Jinping.

Amid worsening tension between China and the west, as well as worries about supply chain disruption, some manufacturers are increasingly using manufacturing bases in China for the local market, rather than for export.

Tesla said products produced at its new battery plant would be sold worldwide.

Tesla’s first factory in Shanghai, which opened in 2019, produced almost 90,000 units in February, according to the China Passenger Car Association, and can turn out about 1.1mn units annually.

Despite success in China — where Tesla makes about a quarter of its revenue — the rise of homegrown 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 kick-starting the electric vehicle supply chain, the tech entrepreneur has faced scrutiny from corners of Beijing’s national security establishment on concerns over his commercial rocket and satellite business SpaceX.

Those concerns deepened after Musk last year started dispatching Starlink satellites to support Ukraine against invading Russian forces.

The billionaire has also faced questions over 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, in a move that could give the Tesla supplier an important foothold in the US market.