Tesla is close to an agreement to produce vehicles in China for the first time

Picture credit: Tesla

Tesla is close to an agreement to produce vehicles in China for the first time, giving it better access to the world’s largest auto market, according to people familiar with the matter, Bloomberg said.

The agreement with the city of Shanghai would allow Tesla to build facilities in its Lingang development zone and could come as soon as this week, said the people, who asked not to be identified because the negotiations are private, according to Bloomberg.

Details are being finalized and the timing of the announcement could change. Tesla would need to set up a joint venture with at least one local partner under existing rules and it isn’t immediately clear who that would be.

Representatives for Tesla at headquarters in Palo Alto, California, didn’t immediately respond to requests for comment, Bloomberg says. A spokesman for Lingang didn’t answer calls to his mobile phone.

Assembling vehicles locally would allow Tesla to avoid a 25% tax that renders Model S sedans and Model X sport utility vehicles more expensive than in the U.S. and continue growing in China where Tesla’s revenue tripled to more than $1 billion last year.

In March, Tencent Holdings Ltd., China’s biggest internet company, bought a 5% stake in Tesla for $1.8 billion.

China has an air pollution problem and now China looks likely to turn to a Zero Emission Vehicle( ZEV) mandate to achieve its own goals for the transition to electric transport.

The latest draft of the proposed legislation is pushing for a relatively aggressive mandate that is already causing some panic amongst automakers heavily investing in the country now that it has become the biggest car market in the world.

The new proposed ZEV mandate is being considered by the Ministry of Industry and Information Technology.

The ZEV mandate would like ZEVs represent 8% of new car sales as soon as 2018 and quickly ramp up to 12% by 2020.

A multi government program called the Electric Vehicle Initiative has set a goal for 30% market share for battery power cars, buses, trucks and vans by 2030, according to International Energy Agency (IEA).

The 10 governments in the initiative include China, France, Germany, the U.K. and U.S. India, which isn’t part of the group, said last month that it plans to sell only electric cars by the end of the next decade, according to Bloomberg.