Electric car producer Tesla says it will build its first factory outside the United States in Shanghai.

Tesla says an agreement signed Tuesday with a Shanghai city government agency calls for construction to start in the near future. It says production would begin three years after that and eventually increase to 500,000 vehicles annually.

The announcement comes amid mounting U.S.-Chinese trade tensions and follows Beijing's decision in April to end restrictions that required foreign automakers to work through joint ventures with local partners.

China is the world's biggest electric vehicle market. Automakers are investing heavily to develop models to appeal to local customers.