"Long-term there's no question we'll have a factory in China.  There is an argument for having that be our first major factory outside the U.S."

Those are the words of Tesla Motors CEO Elon Musk.

As Musk says, Tesla's "fair price" on the Model S in China will likely lead to sales of the Model S there matching the US in 2015:

"It could be as big as the U.S. market, maybe bigger. I don't want to get overexcited about it."

"Even without building there locally, it's always going to be the second-biggest market after the U.S."

Why construct a Tesla factory in China?  The answer to that is twofold:

1. Local production will allow Tesla to avoid shipping costs, taxes and to get the Model S to qualify for China's zero-emissions purchase incentives (only applicable for vehicles produced within China) - per Elon Musk.

2. A Chinese factory will drive down production costs, which we think might be vital to Tesla's goal of selling the Gen III (Model E) at the mid $30,000 price it's targeting.

We'll point out that Musk made no mention of building the Model E in China.  That's an assumption made solely by us.

Source: Automotive News