CEO of Tesla Elon Musk (Photo: VCG)

Chinese Gigafactory 3, Tesla's next Gigafactory, will be built in Shanghai and will produce both automobiles and batteries. 

Elon Musk, CEO of Tesla, made the announcement in Shanghai at an event with the city government on Tuesday, signing a deal to build a factory that can produce 500,000 cars per year.

The plant will be Tesla's first outside the US, reports said. 

The deal is the biggest foreign manufacturing project of all time in Shanghai. Under the deal, the Shanghai municipal government and Tesla will enhance cooperation to achieve win-win benefits.

The company has been working on setting up a production facility in China for more than a year. The effort is receiving renewed urgency because the US and China have increased tariffs on vehicles.