Tesla is rallying after breaking ground on its Shanghai Gigafactory (TSLA)

Tesla China

Tesla CEO Elon Musk kicked off the construction of the electric-car maker's new $2 billion Gigafactory in Shanghai, China, on Monday.
A China-based factory may help Musk dodge tariffs imposed by China.
Tesla shares jumped almost 2% early Monday.
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Tesla shares rallied almost 2% early Monday after the company kicked off the construction of its first overseas Gigafactory in Shanghai, China.

CEO Elon Musk gave a speech at the site of the planned $2 billion factory in the Lingang district of Shanghai at around 3:00 p.m. local time (2:00 a.m. ET) Monday. He said the factory will be finished by the end of 2019.

Before the ceremony, Musk sent out a string of tweets about the Shanghai factory, saying Tesla aims to finish the initial construction this summer, start Model 3 production by the end of year, and reach high volume production next year.

In July, the electric-car maker signed a long-anticipated deal with Shanghai authorities to open a plant with an annual capacity of 500,000 cars in the Chinese city, which would double the size of its global manufacturing and help lower the price tag of Tesla cars sold in China, according to Reuters. Tesla said in October it secured an 860,000 square meter plot of land in Shanghai.

A China-based factory may help Musk dodge tariffs imposed by China as part of Donald Trump's trade war.

So far, Trump has posted tariffs on $250 billion goods Chinese goods coming into the US. And China, in retaliation, has targeted on $110 billion worth of US imports. In July, China also raised duties on US auto imports to 40%, while slashing auto import tariffs for the broader market to 15% from 25%, adding a huge headwind for the $10.5 billion worth of cars the US ships to China each year, including Tesla.

Last month China dialed back the 40% tariff rate to 15% as part of the 90-day truce agreed by Trump and Chinese President Xi Jinping. It will revert to 40% on March 1, 2019, unless the two nations agree on a deal. While it's unclear where they will end up, a factory on Chinese soil would shelter Tesla against potential future tariff hikes.

Tesla was down 4% in the past year.