Tesla Inc (TSLA.O) 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-per cent 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 per cent at US$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 per cent.

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-per cent stake in Tesla for US$1.8 billion.

Tesla has not said which vehicles it plans to build in China. However, a supplier familiar with the company's thinking said it was considering the Model 3 sedan and a crossover companion called Model Y. The Model 3 is slated to begin production in July at Tesla's Fremont plant in California, with the Model Y tentatively scheduled to follow in mid-2019.

In a separate but related development, U.S. Trade Representative Robert Lighthizer said on Thursday he was concerned about Ford Motor Co's (F.N) announcement earlier this week that it will move some production of its Focus small car to China and import the vehicles to the United States.

"If it happened for reasons that are non-economic reasons, then I think the administration should take action," Lighthizer told U.S. lawmakers.

Tesla is the most valuable U.S. automaker, with a market capitalization of more than $60 billion, but it has yet to turn an annual profit.