China opens the doors for Tesla and other foreign automakers to produce electric vehicles in the country

China has strong protectionism laws in place that require any automaker wanting to establish production capacity in the country to partner and share its technology with a local manufacturer – something several automakers have decided to do in order to tap into what is now the largest auto market in the world.

But in an attempt to accelerate electric vehicle production in the country and fight its air pollution problem, China is now proposing to relax those laws for what they call “new energy vehicles,” a.k.a. electric vehicles, in order to attract more foreign investments. The new rules are expected to open the door to Tesla and other automakers who recently expressed desires to establish manufacturing capacity in China to produce electric vehicles.

The National Development and Reform Commission and the Ministry of Commerce released the new policy last week, and it is seeking public comment until next month. The new rules could go into effect soon after.

Wang Binggang, an expert working on the new energy vehicle research project led by the Ministry of Science and Technology, commented on the new rule to China Daily:

“Such a policy shows that the government is working to level the playing field and encourage fair economic activity. Local battery manufacturers will have more incentives to innovate and improve the quality of their products.”

Chinese investments have been flowing to Silicon Valley in electric vehicle startups, like NextEV, Faraday Future, and Lucid Motors, but now China is looking to reverse the roles.

Tesla is among the most prominent electric vehicle manufacturers that has made it clear that they want to manufacture cars in China to satisfy local demand. The company has been exporting its electric cars from California to China since 2013, and the volume could represent as many as 10,000 vehicles this year.

With the upcoming Model 3, it would make sense for Tesla to produce the vehicle in China.

Earlier this year, Musk confirmed that the automaker plans on securing a location and a local partner for a manufacturing facility in China by the middle of the 2016. In June, reports came out that Tesla had reached a deal with a partner in Shanghai, but Musk denied that anything was signed. It looks like Tesla could be waiting for the rules to change since the government expressed its willingness to change its policy around the same time.

Of course, China’s change of heart is motivated by its ambitious goal to have 5 million EVs on the road by 2020 in order to achieve its target to reduce carbon emissions. The country is aggressively pushing for electric vehicle adoption, and introducing more competition at the manufacturing level could certainly help.

Before investing in manufacturing in China, Tesla is planning significant expansions in the US and Europe. The company sees a potential for up to 1 million cars per year at its factory in Fremont, California, and the Gigafactory in Nevada could produce enough batteries for up to 1.5 million cars per year at full capacity, according to Elon Musk.

The CEO also recently announced that Tesla plans to choose a location for ‘Gigafactory 2’ in Europe next year.