Tesla opens Megapack battery factory in China amid nascent trade war

Elon Musk’s Tesla opened an enormous $200 million battery plant in Shanghai on Tuesday, near its carmaking Gigafactory, deepening the company’s investment in China even as its CEO serves in an administration picking a trade war with Beijing.

Musk has been busy in Washington – he is spearheading President Donald Trump’s effort to radically reshape the federal government through his U.S. DOGE Service – and did not attend the ceremony in China.

But the new factory underscores his unusual position as economic tensions between the United States and China escalate.

“If he’s not playing things right on the edge, Elon Musk is not comfortable, so he’s in his element,” said Michael Dunne, a China auto industry consultant, adding that it reflected Musk’s apparent belief that he would innovate faster than everyone else, keeping him in good standing in China.

“That’s the perch from which he plans to navigate what will become increasingly turbulent waters,” Dunne said.

Those waters now include a widening trade conflict.

China implemented tariffs Monday on imports of U.S. coal, liquefied natural gas and other goods in retaliation for Trump’s move last week to slap a further 10 % tariff on all Chinese goods.

Beijing has also recently launched antitrust investigations into Google and Nvidia, the artificial intelligence chip juggernaut, and blacklisted PVH, the U.S. fashion giant that owns brands including Tommy Hilfiger and Calvin Klein.

And in a move widely seen as an effort to curb China’s dominance in the global steel market, Trump signed an executive order Monday imposing 25 % tariffs on all imported steel and aluminum.

The Tesla energy storage factory that was officially opened Tuesday is set to churn out 10,000 batteries, which Tesla calls Megapacks, annually and was built in only seven months. It required one month of negotiation with the government of Lingang, a manufacturing zone in Shanghai, according to a Lingang news release.

“We’ve witnessed the incredible speed of Shanghai and Tesla once again. I’m excited to have this factory kick off an exciting year for Tesla,” said Michael Snyder, a vice president at the carmaker, according to state news agency Xinhua.

Tesla did not respond to requests for comment.

The giant batteries, which look like shipping containers, help utilities and large commercial projects smooth out energy demand across a grid and provide electricity in times of peak demand or blackouts. One Megapack, according to Tesla, stores enough energy to power about 3,600 homes for one hour.

This is Tesla’s first Megapack factory outside the United States – the company operates an energy storage plant in California, which is also capable of producing 10,000 packs annually, according to Tesla’s website.

China’s leadership in the global battery industry makes it a natural place for the company to expand, analysts said.

“There is no better place to manufacture batteries in the world, from scale, quality and cost, than China today,” Dunne said. “From way upstream all the way through to the manufacture of battery cells, China’s got just an overwhelming grip on the industry.”

Tesla already has a large car-manufacturing presence in China. Its Shanghai Gigafactory, which opened in 2019 and supplies the Chinese and overseas markets, produced its three-millionth car in October. China is Tesla’s second-largest market, after the United States.

Beijing was eager to welcome Tesla car manufacturing, experts say, partly to jump-start its own domestic electric vehicle industry and supply chain.

That effort worked: Tesla now faces steep competition from domestic carmakers like BYD, which outpaced it in EV production in 2024. Tesla ranked only 10th among car brands in Chinese sales numbers last year, according to the China Passenger Car Association.

Chinese state media coverage of Tesla’s newest factory has been overwhelmingly positive. The Paper, a state-run outlet, hailed the opening as a representation of “Tesla speed” and “Shanghai speed” as well as a “win-win situation for Tesla and Shanghai.”

Xinhua published photos of the opening ceremony, showing workers in hard hats and reflective vests posing in front of a bright red background. It also showed drone images of the factory site, which covers 200,000 square meters, according to state media.

Zhang Xiaohan, a Beijing-based expert on the energy storage market at the consultancy firm APCO Worldwide, said the glowing articles are due to Tesla’s position in “helping the local supply chain to strengthen and to consolidate” in energy storage and EVs.

“Facing this U.S.-China tech war or economic war, Tesla is still quite a very notable, positive brand in China,” she said.

Musk himself is hugely popular in China, where he receives red carpet welcomes from leaders and is hailed for his business acumen. On a trip to Beijing in April, for example, Premier Li Qiang met with Musk and called Tesla’s China operations “a successful example of Sino-U.S. economic and trade cooperation.”

China is eager to hold up Tesla as an example at a time when the American Chamber of Commerce in Shanghai reports diminishing optimism among its members regarding the Chinese market.

Some Chinese commentators have expressed hope that Musk could bring this spirit of U.S.-China cooperation to Washington and serve as a diplomatic go-between as the trade war ratchets up.

Trump and Chinese leader Xi Jinping were expected to speak last week following the U.S. tariff implementation, but there has been no official word on any deal to avert a full-blown trade war. Trump told Fox News’ Bret Baier he had talked to Xi in the weeks since his inauguration on Jan. 20, but a Chinese Foreign Ministry spokesman said Tuesday only that the two had spoken on Jan. 17.

If Trump and Xi start negotiating – as the leaders of Canada and Mexico did to stave off blanket tariffs – Musk could play a role in shaping the agenda, said Wu Xinbo, an international relations scholar at Fudan University in Shanghai.

But while Musk argues that “decoupling is unnecessary and unrealistic,” Wu said, his impact will be constrained by the roster of China hawks in Trump’s administration.

“It’s not an easy job for him to play a role in Sino-U.S. relations these days,” Wu said.