Tesla in July unveiled plans for what is Musk's biggest overseas move yet, saying that the factory's eventual annual production of 500,000 vehicles would dramatically increase its output and allow more direct access to the world's biggest electric-vehicle market.
But the drop in the sales isn't just a direct effect of the trade war, which is why Monday's groundbreaking comes at an uncertain time.
The Tesla factory, which will be built with an investment of over 50 billion yuan (USD seven billion), is the largest foreign-invested manufacturing project in Shanghai's history, state-run Xinhua news agency reported. For context, that number is about double Tesla's current yearly production.
The so-called Gigafactory is China's first wholly foreign-owned auto plant, a reflection of China's broader shift to open up its vehicle market, even amid a trade war with the United States which has seen a rise in tariffs on cars imported from the U.S.
With the ownership restriction removed, Tesla became the first foreign carmaker to set up a wholly-owned new-energy vehicle (NEV) factory in the mainland.More news: Australia: Consulates Evacuated Over Suspicious Packages
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Tesla unveiled its first Gigafactory in 2016, which was initially a "tent" production facility in the Nevada desert.
'Affordable cars must be made on same continent as customers, ' Musk wrote on Twitter ahead of the event.
Pricier versions of the two cars will still be produced in the United States for global markets including China, he added. Apple triggered global equity losses last week when it said slackening Chinese demand spurred it to cut its revenue outlook for the first time in nearly two decades.
Tesla has said it plans to use mostly local debt to fund the factory's construction.
Tesla (TSLA) bought the land for the factory outside Shanghai in October for $140 million.
With China's first wholly foreign-owned auto plant, Tesla will circumvent high import tariffs and bolster its worldwide margins as competitors Ford Motor Company (NYSE: F) and General Motors Company (NYSE: GM) suffer regional declines.
Tesla has said it aims to produce its Model 3 mass-market auto from 2019 at the new plant.