A day after it announced price hikes for the Model S and Model X in China, in response to new tariffs on imported electric cars in the country, Tesla has finalized a deal to build a new factory in Shanghai.

“Last year, we announced that we were working with the Shanghai Municipal Government to explore the possibility of establishing a factory in the region to serve the Chinese market,” a Tesla spokeswoman said. “We have signed a cooperative agreement for Tesla to start building Gigafactory 3, a new electric vehicle manufacturing facility in Shanghai.”

After getting the necessary approvals and permits, Tesla estimates it will take roughly two years before commercial production can begin.  The timeline suggests another two to three years before the factory is fully ramped up to produce around 500,000 vehicles per year for Chinese customers.”

Tesla’s US operations will continue unhindered. “Our announcement will not impact our US manufacturing operations, which continue to grow,” said a statement from Tesla.

The new deal lays out plans to build a factory as big as the company’s primary factory in Fremont, California, which produced just over 53,000 cars last quarter. Musk plans for the Fremont factory to produce 450,000 cars or more at full capacity.

Once the new China factory is operational, Tesla could build cars for the Chinese market without paying the new import duties. The Shanghai factory could also give the company room to build additional models.

Tesla analysts have noted that the Fremont factory has no room to add an additional assembly line to build the planned Model Y SUV, which Musk has said is due in late 2019 or early 2020.

When it added a second assembly line to produce more Model 3s, the company constructed a giant tent running out from the Fremont factory to produce more cars.

Tesla is the second American manufacturer with plans to expand overseas, following Harley-Davidson, since a round of retaliatory tariffs broke out under President Trump.

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