Elon Musk Says Tesla Will Build Shanghai Battery Factory

Elon Musk, the chief executive of Tesla, announced on Twitter on Sunday that his company would build a factory in Shanghai with the aim to assemble 10,000 giant batteries annually for electric producers and distributors.

The batteries, which Tesla calls Megapacks, are designed to store large amounts of electricity — a single Megapack can power 3,600 homes for one hour, according to Tesla. The batteries, which are roughly the length and height of an international shipping container, can discharge the electricity to run factories or homes when demand from the local power grid is high, or during a blackout.

The capacity to store electricity when it isn’t in demand is critical as electric utilities move toward wind and solar energy to replace power generated by fossil fuels. In China, demand for grid-storage batteries is especially strong. Many provinces now require new solar and wind farms to have enough batteries to hold 10 to 20 percent of the electricity they generate.

China has also been liberalizing its power markets in response to waves of blackouts in the autumn of 2021, when demand overwhelmed the country’s power suppliers. Many factories were closed for days, and some office towers had to be evacuated before their elevators lost power. Part of a chemical factory blew up, injuring dozens of workers, when it suddenly lost the electricity necessary to maintain the mix of temperature, pressure and other variables needed for its processes.

China has responded by allowing electricity prices to vary much more throughout the day in hopes of encouraging smoother use of power. Electricity becomes inexpensive when the sun is shining brightly, or the wind is blowing strongly, generating so much renewable energy that factories and homes may not be able to use it all immediately.

Variable electricity pricing aims to encourage electricity users to turn off power-hungry devices when demand is high, reducing the risk of blackouts. The combination of China’s shift in pricing and the regulations for new renewable energy installations to store electricity has created a fast-growing demand for batteries.

Tesla is also active in renewable energy: It is a large manufacturer of solar panels in the United States.

Large batteries allow power generators, power users and even speculators to buy electricity when it is cheap and sell it when the price rises.

“It’s that gap that determines whether storage is in the money or not,” said David Fishman, a senior manager at the Lantau Group, an energy consulting firm in Hong Kong.

Mr. Musk said in a tweet that the goal of the new factory was “to supplement output of Megapack factory in California.” The Biden administration, as well as the Chinese government, has been pressuring companies to make large investments in emerging technologies.

The $370 billion Inflation Reduction Act, which President Biden signed into law last year, provides incentives for rechargeable battery production in the United States to supply the American market.

Shanghai’s government declined to provide an immediate comment on Tesla’s announcement.

For Tesla, Shanghai is the site of its single largest factory for making electric cars. The plant not only supplies China’s domestic vehicle market but also exports large numbers of cars to Europe, where Tesla has found it is harder to build factories as quickly as in Shanghai.

China produces most of the world’s rechargeable batteries, and dominates the chemical processing needed to produce their ingredients. Tesla’s Shanghai facility that will make the Megapacks will be close to the factories that manufacture almost all of the world’s lithium-iron-phosphate compounds for batteries.

These compounds are less expensive to make than the materials previously used in rechargeable batteries, which include cobalt. Human rights advocates have raised alarms about the working conditions at cobalt mines in Africa, the world’s leading source of the mineral.

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