United States electric carmaker Tesla Inc will build a Megafactory in Shanghai to make its energy storage product Megapack, according to an agreement reached between the Lin-gang Special Area Administration and Tesla (Shanghai) on Sunday.

The plant is designed to produce and initial output of 10,000 Megapacks a year, or about 40 GWh of energy storage. Scheduled to break ground in the third quarter of this year, the Megafactory will start production in the second quarter of 2024, and its products will be sold worldwide, the carmaker said.

"Five years ago, the Tesla Gigafactory helped Shanghai become a hub for the new energy vehicle industry. Today, we witness the signing of Tesla's energy storage Megafactory, which will definitely become an important driving force in promoting the development of energy storage in Shanghai and its low carbon transition," Zhuang Mudi, deputy secretary-general of the Shanghai government said.

The Tesla plant will be located in the Lin-gang Special Area of the China (Shanghai) Pilot Free Trade Zone, where a comparatively complete industrial chain has been created for new energy storage and use. The area has ambitions to become a new energy and new energy storage industrial cluster for Shanghai and China.

"Tesla will continue to invest in China through a wider range of products and services to encourage more partners to join forces in accelerate the world's transition toward more sustainable energy," said a newsletter from the US carmaker.

The existing Tesla Shanghai factory, which is Tesla's first Gigafactory outside the US, began producing Tesla Model 3 cars in 2019 and now is capable of producing about 20,000 cars a week.