Elon Musk has attended the ground-breaking ceremony for a $2bn (£1.6bn) Tesla factory in Shanghai that is expected to begin producing electric cars by the end of the year.
Gigafactory 3 will be China's first wholly foreign-owned car plant and should allow Tesla to minimise the impact of the trade war which has seen Beijing impose big tariffs on US car imports.
It came as US and Chinese officials began talks aimed at overcoming the bruising dispute between the world's two biggest economies that has rattled markets and fuelled fears of a global slowdown.
Tesla's factory in China – the world's biggest car market – will be its first outside the US.
The plan comes after Beijing said it would end restrictions this year on foreign ownership of electric vehicle producers, in an effort to spur industry development.
Until now, foreign carmakers that wanted to manufacture in China have had to work through state-owned partners.
Mr Musk joined Shanghai's mayor and other local officials at the rainy ceremony on Monday to mark construction work on the site in the outskirts of the city.
The Tesla boss said: "We think with the resources here we can build the Shanghai Gigafactory in record time and we're looking forward to hopefully having some initial production of the Model 3 towards the end of this year."
He said the Shanghai factory would produce "affordable versions" of its Model 3 and the planned "Y" model that has yet to receive a formal name.
Higher-priced models will be built in the US for export to China, he said.
Producing cars in China should help Tesla fend off competition from domestic electric vehicle brands. Meanwhile, electric models from Nissan began rolling off a production line in China in August.
China raised the import tariff on US cars to 40% in July, then cut it to 15% from the start of this year as part of a trade war truce.
The lower rate will last until the end of March pending trade talks.
Tesla's plans come as China's economy faces a slowdown – something Apple said has contributed to concerns it is going to miss its quarterly revenue target.
The country's car market is expected to have shrunk last year for the first time in decades but demand for electric vehicles remains strong.
Tesla secured the site for its 500,000 vehicle capacity plant in October and has already begun hiring staff and starting procurement for building materials.
Alan Kang, Shanghai-based analyst for consultancy LMC Automotive: "Tesla's sales [in China] have dropped over the past few months because of high prices caused by the tariffs.
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"And the competition is getting more and more fierce.
"With the construction of the Shanghai factory, the faster the better [for Tesla]."