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Tesla, The electric car producer is going to build its first factory outside the United States in Shanghai under a contract signed on Tuesday; it will be the first entirely foreign-owned automaker in China. Tesla Inc Chief Executive Officer Elon Musk signed a deal with Chinese authorities to build a new auto plant with the capacity to manufacture up to 500,000 vehicles per year as reported by Bloomberg. The Chief of Tesla is currently travelling in the Asia region.

The deal is made to reduce the tension over tariff war between China and US, also after the company increased prices on U.S. made cars it sells in China to compensate the cost of new tariffs imposed by the Chinese government in reprisal for U.S. President Donald Trump’s heavier taxes on Chinese supplies.

“Last year, we announced that we were working with the Shanghai Municipal Government to explore the possibility of establishing a factory in the region to serve the Chinese market,” Tesla said in a press statement. “Today, we have signed a Cooperative Agreement for Tesla to start building Gigafactory 3, a new electric vehicle manufacturing facility in Shanghai.”

According to the company, construction will start soon, once the official authorization will be attained. Also, the production would begin two to three years after that the capacity will increase. No details about the financial setup were announced.

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Local government said the factory would be the biggest foreign venture to date in Shanghai, a base for a joint project between General Motors Co. and Volkswagen AG and a state-owned automaker. The signing observance was attended by Tesla chairman Elon Musk, Mayor Ying Yong and other Chinese officials.