Tesla Motors, Inc. (TSLA Quick QuoteTSLA - Free Report) is planning to set up a production base in China, per Bloomberg. The facility will most likely be built in Shanghai, although the cities of Suzhou and Hefei are also lobbying for the investment.

According to media reports, Tesla has signed a non-binding memorandum of understanding with Jinqiao Group, a company owned by the Shanghai government, to set up its production facility in the region. Both companies will likely invest 30 billion yuan ($4.5 billion) each, taking the total investment in the project to $9 billion. Most of the investment by Jinqiao Group will be in terms of land provided by it.

Manufacturing cars in China will help Tesla to avoid the 25% import tariff imposed by the nation, thus reducing car prices there. This will likely boost the automaker’s sales volume in China. Also, a production facility in China will help Tesla in achieving its aim of improving production volume to 500,000 units by 2018.

China is the electric carmaker’s largest market outside the U.S. Tesla held the official unveiling of Model X in China last week, nearly five months after it started taking orders for the car there. The event, which was reportedly attended by 400 people, took place in China’s capital, Beijing.

Tesla will start delivering Model X in China from July. We note that the world’s largest automobile market is the first Asian country to get the vehicle.

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Zacks Rank

Tesla currently carries a Zacks Rank #4 (Sell). Some better-ranked automobile stocks include Lear Corp. (LEA Quick QuoteLEA - Free Report) , Superior Industries International, Inc. (SUP Quick QuoteSUP - Free Report) and Oshkosh Corporation (OSK Quick QuoteOSK - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy).

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