Tesla to build Shanghai factory to make Megapack batteries

Tesla Inc (TSLA.O) is opening a factory in Shanghai, capable of producing ten thousand Megapack energy product per year, to supplement output of Megapack factory in California, the company said in a tweet on Sunday.

The news was first reported by Chinese state media outlet Xinhua.

Elon Musk's automaker will break ground on the plant in the third quarter and start production in the second quarter of 2024, Xinhua reported from a signing ceremony in Shanghai.

Complementing a huge existing Shanghai plant making electric vehicles, the new factory will initially produce 10,000 Megapack units a year, equal to around 40 gigawatt hours of energy storage, to be sold globally, Xinhua said.

With the new Shanghai plant, Tesla will take advantage of China's world leading battery supply chain to ramp up output and lower costs of its Megapack lithium-ion battery units to meet rising demand of energy storage globally as the world shifts to use more renewable energy.

Tesla generates most of its money from its electric car business, but Musk has committed to grow its solar energy and battery business to roughly the same size.

Chinese battery giant CATL (300750.SZ) has also been deepening its collaborations with clients including Tesla in energy storage battery supplies, which its Chairman Robin Zeng expected to have a larger market than batteries powering electric vehicles (EV).

Tesla currently has a Megafactory in Lathrop, California, capable of manufacturing 10,000 Megapacks per year.

The company began producing Model 3 cars in Shanghai in 2019 and now is capable of producing 22,000 units of cars per week.

Tesla planned to expand the Gigafactory Shanghai, its most productive automaking plant, to add an annual capacity of 450,000 units, Reuters reported last May.

The U.S. company, however, had grappled with rising inventory in Shanghai as demand started weakening in the third quarter, leading to aggressive price cuts in its major markets globally in January.

EV sales growth in China, the world's largest auto market, has slowed to 20.8% in the first two months of 2023, from 150% in the same period a year ago.