Tesla will build a large new battery factory in Shanghai, further cementing China’s place at the top of the global energy storage supply chain.

The U.S. electric car pioneer will manufacture its Megapack large-scale energy-storage unit in the new facility, which adds to its factory for EVs in Shanghai. The company led by Elon Musk, who is said to have visited China last weekend, announced at a signing ceremony for the project in Shanghai on Sunday. Tom Zhu, Tesla’s senior vice president of automotive, and Shanghai government officials including Vice Mayor Wu Qing attended, with Tesla Vice President Tao Lin signing the contract.

Construction is scheduled to begin in the third quarter of this year and the plant will commence production in the second quarter of 2024, the company said in a statement.

China already had more than 1,400 gigawatt-hours of battery manufacturing capacity, with another 6,000 gigawatt-hours under construction or announced. The United States has the second-biggest pipeline of about 1,000 gigawatt-hours of capacity, but the vast majority of that has yet to be built.

Unlike most battery production, which mainly goes to the electric vehicle market, the Megapack factory will build cells for grid-scale energy storage, a much smaller sector. There were about 19.3 gigawatt-hours of installed stationary battery storage at the end of 2020, according to the International Energy Agency. That’s likely to grow to more than 150 gigawatt-hours by 2026.

Musk, however, has a much grander vision for the sector, expecting storage to pair with renewable energy to do much of the heavy lifting in decarbonizing electricity and greening industrial sectors. Tesla’s master plan forecasts about 46,200 gigawatt-hours of stationary battery storage need to be installed in the next 20 years.

The Megapack is intended as a massive battery to help stabilize energy grids, with the company saying each unit can store enough energy to power an average of 3,600 homes for one hour. The new factory will initially produce 10,000 Megapacks every year, equal to around 40 gigawatt-hours of energy storage, and the products will be sold worldwide.

Shares of Contemporary Amperex Technology Co. Ltd., the world’s biggest maker of batteries for electric cars and a supplier to Tesla, were little changed in China trading Monday.

China, home to rising global electric vehicle star BYD Co., is an extremely important market for Tesla. Its existing car factory on the outskirts of Shanghai, which the U.S. firm owns outright, produced almost 711,000 cars last year, or 52% of its worldwide output – even with production being disrupted by China’s now-abandoned Covid Zero policy.

Authorities rolled out the red carpet to help Musk set up Tesla’s first plant outside the United States in early 2019, and Shanghai government officials assisted the company with resuming production promptly after pandemic-related disruptions.

Musk’s time operating in China hasn’t been entirely smooth, however. An expansion of the Shanghai EV plant was delayed over data concerns about Tesla’s connections to Musk’s internet-from-space initiative Starlink, people familiar with the matter said earlier this year, days after angry Tesla owners swarmed showrooms in China to complain about missing out on another round of price cuts.

Tesla cars also were banned from Chinese military complexes and housing compounds in early 2021 over concerns about sensitive data being collected by cameras built into the vehicles.

Musk said on an earnings call in January that China is the most competitive auto market. He’s made similar comments before, including during an online forum in September 2021, when he said he had “a great deal of respect for the many Chinese automakers.”

Tesla’s deepening China investment also comes at a time of brewing tensions between Beijing and Washington.

Firms including Apple have been rethinking production in the nation amid heightened tensions with the United States over everything from an alleged Chinese spy balloon being shot down over American skies to Beijing’s partnership with Russian President Vladimir Putin.

Even so, other international names are doubling down on China, with France’s Airbus SE recently announced plans to double its production capacity in the country for one of its top-selling jets. The European plane maker will add a second final assembly line for A320 narrow-bodies at its existing factory in Tianjin, under a deal signed by chief executive Guillaume Faury in Beijing last week.

Bloomberg’s Jessica Sui contributed to this report.