Tesla has confirmed the Model Y battery-powered compact SUV would be the second model to be produced at its new plant in Shanghai, China.

The announcement came shortly after the company began local deliveries of its first model to be produced in China, the Model 3 sedan, which is set to significantly lift the brand's sales in the world largest electric vehicle market.

New energy vehicle sales in China amounted to 1.04m units in the first 11 months of 2019, most of which were battery-powered vehicles.

The Chinese made Model 3 is priced at just under CNY300,000 (US$43,000), 16% less than the equivalent imported models it had been selling previously, and prices of other models have also been cut this month.

Local production has lowered Tesla's costs significantly in China, with key components such as batteries sourced from local suppliers and also with the elimination of import tariffs. The local Model 3 also qualifies for government subsidies.

After trial production at 1,000 units per week at the Shanghai plant in the fourth quarter of last year, Tesla was reported to have stepped up production of the Model 3 to 3,000 units a week since the end of December.

Adding a second model will help strengthen the company's local line-up significantly, as well as help increase economies of scale in terms of local production and purchasing.

The electric SUV segment is also expected to be one of the fastest growing segments in the coming years.

Production of the Model Y, which was first unveiled in the US in March 2019, is expected to begin in Shanghai sometime in 2021, after it goes into production at the company's Fremont plant in the USA in mid-2020.

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