Tesla has agreed to pay China 2.23 billion yuan (RM1.33 billion) in annual tax as part of a deal with local authorities to build its Gigafactory on the outskirts of Shanghai, Automotive News reports. Under the Shanghai government’s leasing terms, Tesla must begin generating the annual tax revenues at the end of 2023, or risk losing the land, which it bought for US$2 billion (RM8.26 billion) last year.

The leasing terms also reveal that Tesla must spend 14.08 billion yuan (RM8.26 billion) in capital expenditure on the plant over the next five years. This is Tesla’s first production facility outside of the United States, and its establishment is aimed at avoiding tariffs and keeping prices down in China, otherwise known as the world’s largest auto market.

However, the report stated that Tesla’s monetary obligations aren’t as substantial, at least when compared to the automaker’s own targets. For example, Tesla plans to inject billions of dollars into the manufacturing facility in Shanghai as it aims to produce upwards of 500,000 vehicles annually, a figure rivalling its facility in Fremont, California. This also depends on how quickly output ramps up.

In the filing, Tesla said: “We believe the capital expenditure requirement and the tax revenue target will be attainable even if our actual vehicle production was far lower than the volumes we are forecasting.”

The facility in Shanghai will be used to produce the Model 3 sedan and the upcoming Model Y crossover, although it’s unclear if the Model X, Model S and the pick-up truck will be made there. Last year, the China Association of Automobile Manufacturers estimates that local sales of electric vehicles would reach an astronomical seven million units annually by 2025.

-paultan