Tesla’s Shanghai Megapack energy storage plant breaks ground, a vivid example of China-US win-win cooperation rebutting Washington’s ‘overcapacity’ hype

US electric car producer Tesla broke ground on a megafactory in Shanghai on Thursday, marking the company's first energy storage system factory outside the US to manufacture its energy storage batteries known as Megapacks.

Observers said that the factory signifies another vivid example of how industrial and technological cooperation between China and the US can lead to a win-win result. It underscores that, despite escalating trade tensions and discord in bilateral relations instigated by Washington, US businesses are taking a pragmatic approach to make business decisions and highly value the competitiveness of Chinese new energy industries. It is also a strong rebuttal to the "overcapacity" narrative hyped by some Western politicians and media outlets, experts said.

The project is another major investment for Tesla in China following the inauguration of its Shanghai Gigafactory in 2019, which Tesla deemed as "opening a new chapter" in China. It came after Tesla's CEO Elon Musk visited China on April 29, during which he met with Chinese Premier Li Qiang and stressed that "Tesla is willing to deepen cooperation with China and achieve more win-win results."

The initial plan for the project is to produce over 10,000 units of super-large-scale electrochemical commercial energy storage systems annually. Mass production is expected to begin in the first quarter of 2025.

Following the groundbreaking ceremony, Shanghai Lingang Economic Development Group and Tesla signed a contract for China's first batch of these energy storage systems, according to Xinhua News Agency. The negotiation and signing of the Shanghai Energy Storage Gigafactory contract took only one month, once again setting a record for the "Lingang speed."

The new factory covers an area of approximately 200,000 square meters with a total investment of around 1.45 billion yuan ($200.21 million), and aims to export products to overseas markets, including the Asia-Pacific region, to support the global "green future," Xinhua reported.

Despite the US intensifying its crackdown on China's new energy vehicle sector, Tesla has chosen to further invest in the Chinese market. This highlights industry leaders' robust confidence in China's high-tech advancement and its vast market, signifying that China's market continues to exert strong appeal for foreign investment, Li Yong, a senior research fellow at the China Association of International Trade, told the Global Times on Thursday.

Li stressed that the decision was based on a favorable investment environment, promising growth prospects, and profitable development trends. China possesses advanced energy storage technology and a well-established, stable supply chain, which are key reasons for Tesla's choice to establish its factories in Shanghai.

"The ongoing advancement of related industries in China into cutting-edge sectors signifies vast potential for foreign companies," Li added.

Tesla's Vice President, Tao Lin, said in the Xinhua report that the significance of Tesla's energy storage business now rises on par with its well-known electric vehicles. She also highlighted China's strong industrial system, market potential, resilient economy, and favorable business environment.

Tesla's decision to build its second energy storage super factory in Shanghai is also driven by the faster construction speed in China and the global supply constraints related to lithium iron phosphate battery cells. Currently, only China possesses large-scale production capacity for this key raw material in energy storage batteries, industry insiders said.

Experts said the latest mega project signifies the ongoing stride of this industry giant's investment and cooperation with China, serving as a strong rebuttal to rhetoric that foreign investment is withdrawing from China, and the overcapacity hype about China's NEV industry.

Chinese officials have made concrete pledges that the country's door to the outside world will open wider and wider. Chinese Premier Li Qiang promised in the meeting with Musk that China's market will always be open to foreign-funded firms.

China's Ministry of Commerce (MOFCOM) stated on Thursday that China will unswervingly promote high-level opening-up, and the Chinese government holds a consistent attitude of welcoming foreign companies to invest and creating a fair and predictable environment for them.