Tesla Motors may be setting up a manufacturing plant in Shanghai to serve the China market.

An unnamed source has told Bloomberg that Jinqiao Group, a Shanghai government-owned company, has signed a non-binding memorandum of understanding with Tesla that will lead to a $9 billion factory investment in the area. Tesla and Jinqiao Group will form an enterprise where each entity owns a 50% share. Tesla is expected to pay cash while Jinqiao Group will put up the other half, mostly in the form of real estate.

Manufacturing its electric cars in China would allow Tesla to circumvent the country’s 25% import duty placed on cars imported from other countries. That would help keep car prices more competitive with foreign luxury brands such as Audi and BMW and local manufacturers such as BYD and BAIC.

“This would be a major win for Tesla and Shanghai,” says Steve Man, an auto analyst at Bloomberg Intelligence. “The investment will probably include a nationwide dealership network, superchargers, R&D center and potentially a second Gigafactory.”

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Tesla CEO Elon Musk has said on numerous occasions that Tesla will have a factory to produce the Model 3 in China eventually. It’s yet to be know whether the company will also be manufacturing its Model S and Model X in China.

Shanghai is home to SAIC Motor Corp., which has joint ventures with General Motors and Volkswagen. The city is a financial and manufacturing center for China. Companies operating in Shanghai have access to excellent rail links to all of China, and its port could be key to distributing Tesla electric cars to other Asian nations.

Suzhou and Hefei are among the other Chinese cities that would like to have a Tesla factory. A Tesla plant would be attractive as a big boost to the local economy and a job creator for local residents.

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