by Mark Harris

Tesla is expanding its production capacity in China, with plans to build a new factory in Shanghai that could eventually produce up to one million electric vehicles (EVs) per year.

The news was announced by Tesla CEO Elon Musk during the company’s annual shareholder meeting on Tuesday, and comes as the EV maker ramps up production of its mass-market Model 3 sedan.

Here’s what we know so far about Tesla’s plans for its new Shanghai factory:

  • The factory will be built on a plot of land that Tesla has already acquired in the Lingang area of Shanghai, and construction is set to begin “in the near future.”
  • Once completed, the factory will have an annual production capacity of 250,000 vehicles.
  • However, Musk said that the factory will be designed for “future expansion” up to a production rate of 500,000 vehicles per year.
  • Eventually, the Shanghai factory could have a production capacity of one million EVs per year — or even two million, according to Musk.
  • The factory will build Tesla’s entire product line, including the Model S, Model X, and Model 3, as well as the company’s upcoming Model Y crossover SUV.

Musk said that Tesla’s new factory in China will be “complementary” to the company’s existing production facility in Fremont, California, which has a current annual production capacity of around 500,000 vehicles.

Tesla has been working to ramp up production of the Model 3 since late last year, when the first vehicles were delivered to customers. The company has faced a number of challenges along the way, including bottlenecks in its battery production, but it now appears to have largely overcome those issues.

The ramp-up in production has been crucial for Tesla, as the Model 3 is seen as the key to the company’s plans to become a mass-market automaker. With a starting price of $35,000, the Model 3 is significantly cheaper than Tesla’s previous offerings, and could help the company to expand its customer base beyond the early adopters that have been buying its cars to date.

Demand for the Model 3 has been strong, with Tesla previously saying that it had around 500,000 reservations for the car. However, it’s not clear how many of those reservations have turned into actual orders, as Tesla has been gradually shifting its focus from reservations to production and deliveries.

Building a new factory in China is also a key part of Tesla’s plans to boost sales in what is already the world’s largest EV market. Tesla sold around 17,000 cars in China last year, accounting for around 15 percent of its total sales.

However, the company is facing stiff competition in China from a number of local EV makers, many of which benefit from significant government subsidies.

In order to combat this, Tesla has been working on plans to build a factory in China that would allow it to avoid import tariffs and sell its cars more cheaply in the country. The company has been in talks with the Chinese government about the factory for several months, and Tesla’s chief financial officer, Deepak Ahuja, said in February that the company was “close to an agreement” on the factory.

The news of Tesla’s plans for a new factory in China comes as the company is nearing the completion of its Gigafactory 1 in Nevada, which is designed to increase the company’s production capacity for batteries and drivetrains.

The Gigafactory 1 is currently around 30 percent complete, and Tesla has said that it plans to start production of battery cells at the facility later this year. The factory is expected to be fully operational by 2020, and will eventually have a production capacity of around 35 gigawatt-hours annually.