Details of the deal, as reported Sunday by The Wall Street Journal (WSJ), were still being worked out, but the new factory would be wholly-owned by the Silicon Valley-based carmaker, sources with knowledge of the deal told the US business newspaper.

Tesla's factory would be the first of its kind for a foreign car manufacturer as it reportedly excluded a technology-sharing agreement. China usually requires foreign automakers to set up joint ventures with local Chinese partners, which involves splitting profits and giving away some technology.

No timeframe for the launch of the Tesla plant was given. CEO Elon Musk said in 2015 that a factory in the country could cut the price of vehicles sold in China by a third. However, WSJ wrote that Tesla cars produced under the new factory deal were still likely to be considered "imports" and faced a 25 percent duty.

Tesla has been pursuing a Chinese factory for years, and the Shanghai deal started to come into focus in June. That followed the announcements that Tesla sold $1 billion (850 million euros) worth of cars in China in 2016, and that it had accepted a large investment from Tencent Holdings, a technology giant in China.

Read more: The race to e-mobility

China's electric-vehicle market is already the world's largest and is expected to continue growing fast, especially since the government plans to require that all automakers' sales include a certain percentage of electric vehicles from 2019.

Beijing is also mulling plans to ban fossil-fuel burning cars by an unspecified date, following decisions by France and Britain to outlaw the sale of such vehicles from 2040 to limit emissions.

uhe/jd (Reuters, AFP)