Electric car manufacturer, Tesla Inc. (NASDAQ: TSLA), has confirmed the company has reached an agreement with the Shanghai municipal government to build a factory in the region, according to people familiar with the project, reported by the Wall Street Journal.

This reaffirms the previous speculation of Tesla building a factory in the Guangdong province, which Tesla denied.

The municipal government will allow Tesla to build a wholly owned factory in the city’s free-trade zone area. China implements an import tax on vehicles that Tesla will also have to pay for the tax. But with the factory being located in China, it will cut down foreign production costs and deployment.

China’s government has been considering allowing foreign auto manufacturers to set up wholly owned factories in the free-trade zones to increase deployment of electric vehicles in the region, according to Business Insider.

“Tesla is working with the Shanghai Municipal Government to explore the possibility of establishing a manufacturing facility in the region to serve the Chinese market,” Tesla spokesperson referenced a statement the company said back in June, ”Tesla is deeply committed to the Chinese market, and we continue to evaluate potential manufacturing sites around the globe to serve the local markets.”

Tesla declined to comment on the matter.