Photo/Zhang Xiaoqing

Tesla Inc is in the process of obtaining land in Shanghai for its first factory outside the United States, according to people with direct knowledge of the matter, as it pushes ahead with plans to set up production in China.

The automaker is the sole bidder for a plot of land with an auction price of around 1 billion yuan (144.7 million U.S. dollars), the people said, asking not to be identified as the information is not public. A decision by the Shanghai municipal government to allocate the land to Tesla could be made as soon as this month, they said.

In July, Tesla reached a preliminary agreement with the Shanghai authorities to build a factory that the electric-car pioneer said will eventually produce 500,000 battery-powered vehicles annually, more than what its lone U.S. assembly plant has made.

Setting up manufacturing in China will enable the Palo Alto, California-based company to avoid paying import duties as high as 40 percent and offer cheaper cars in the world's biggest market for electric vehicles.

The carmaker is considering raising some of the 5 billion U.S. dollars it intends to invest in the plant near Shanghai from local partners, Bloomberg reported on August 1, citing a person familiar with the plans.

Tesla CEO Elon Musk told analysts on an earnings call that he expected it would take about 2 billion U.S. dollars worth of investment for the factory to be able to produce around 250,000 vehicles a year.

Tesla signed a memorandum of understanding with the Shanghai municipal government on July 10 to set up a factory in the eastern part of Shanghai, which is the first of its kind outside the US.

According to the MoU, the factory will have an annual output of 500,000 vehicles. Tesla will also combine the functions of research and development department, manufacturing, sales and an electric vehicle innovation center.

Huang Ou, deputy director of Shanghai Municipal Commission of Economy and Information Technology, said at a news conference in July that the Tesla factory would be the largest foreign-invested manufacturing project in Shanghai so far.

But as to the possible technology transfers, Huang said these should be left to the related companies to decide.

Email: limenglin@nbd.com.cn