Tesla Inc took a step closer toward establishing an electric vehicle manufacturing plant in China with its announcement on Thursday that it is in exploratory talks with the Shanghai municipal government.
Tesla has said it wants to build electric cars in China to avoid a 25-percent tariff on imported vehicles.
The company did not provide a timeline for setting up a China plant, but said it expects to "more clearly define" its China production plans by the end of the year.
Tesla shares were up 1.5 percent at $382 in midday trading.
China's central government requires foreign companies such as Tesla to have a Chinese partner in new auto manufacturing ventures, with the foreign company owning no more than 50 percent.
Tesla did not say which companies it might partner with. Speculation has centered on Tencent Holdings Ltd, the internet giant that is China's largest company. Earlier this year, Tencent acquired a five-percent stake in Tesla for $1.8 billion.
Tesla is the most valuable US automaker, with a market capitalization of more than $60 billion, but it has yet to turn an annual profit.