Electric car maker Tesla Inc reaffirmed on Sunday it is talking with the Shanghai municipal government to set up a factory in the area and expects to agree on a plan by the end of the year, but it declined to comment on a report that a deal has been reached.
China levies a 25 percent duty on sales of imported vehicles and has not allowed foreign automakers to establish wholly owned factories in the country, the world's largest auto market.
Those are problems for Tesla, which wants to expand its presence in China's growing electric vehicle market without compromising its independence or intellectual property.
The Shanghai Economic and Information Technology Commission said in a statement sent to the Global Times on Monday that openness is Shanghai's biggest advantage and the city welcomes companies, including Tesla, to develop there.
The Chinese government has considered allowing foreign automakers to set up wholly owned factories in free trade zones, in part to encourage production of electric and hybrid vehicles to meet ambitious sales quotas.
Tesla would still have to pay a 25 percent duty on cars built in a free trade zone, but it could lower its production costs.
Tesla on Sunday pointed to a statement it made in June that the company "is working with the Shanghai municipal government to explore the possibility of establishing a manufacturing facility in the region to serve the Chinese market. As we've said before, we expect to more clearly define our plans for production in China by the end of the year."
A Tesla spokesperson in the U.S. declined to comment further beyond referring to the June statement.
The Wall Street Journal reported that Tesla and Shanghai have reached a deal in that city's free trade zone. Shanghai is China's de facto automotive capital and a significant market for luxury vehicles.
Chinese Internet company Tencent Holdings has a 5 percent stake in Tesla and is seen as a potential ally for Tesla's efforts to enter the Chinese market.
Tesla Chief Executive Elon Musk has said the company eventually will need vehicle and battery manufacturing centers in Europe and Asia.
Tesla has production problems at its sole factory in California. The company is trying to accelerate the output of its new Model 3 sedan, but conceded earlier this month that production bottlenecks had held third-quarter production to just 260 vehicles, well short of the 1,500 units previously planned.