Tesla plans to build a second electric vehicle (EV) plant in China to help it keep up with soaring demand both locally and in export markets, according to reports in China citing sources close to the company.

The electric vehicle (EV) manufacturer was said to be planning to double capacity in China to at least 1m cars per year in the short term with a second plant set to be built near its existing factory in the Lingang free trade zone in Shanghai.

Others reports suggested this would be just the next step in Tesla’s long-term plan to have capacity for 1-2m vehicles per year in China, to increase the company’s exposure to the country’s rapidly growing EV market.

Sales of new energy vehicles (NEVs), comprising mainly electric and hybrid-powered vehicles, surged by 157% to a record 3,521,000 units in China in 2021 or 13% of total vehicle sales in the country, according to the China Association of Automobile Manufacturers (CAAM). Battery-powered electric vehicles amounted to 2,990,000 units.

The government recently lifted its target for NEV sales to account for 40% of total vehicle sales by 2030 and 60% by 2035 before internal combustion vehicles are phased out completly in the 2040s. This will provide a substantial growth opportunity for global EV manufacturers.

Tesla produced around 484,000 EVs in China in 2021, or more than half of its global output, with around 320,000 of these sold locally. With costs lower than in the US, the Chinese factory has helped make Tesla more competitive in global markets, including Asia and Europe.

Tesla completed construction of its first plant in China in just over one year and is expected move just as quickly in response to growing local demand. The company also has a new plant coming on stream in Germany this year, which will likely replace some of its Chinese exports to Europe.