Electric-vehicle maker Tesla has agreed with the Shanghai government to set up a plant in the city, a deal that would make it the first foreign automaker to open a wholly owned factory in China, according to a report in the Wall Street Journal on Sunday.

The company reaffirmed it is talking with the Shanghai municipal government to set up a factory in the region, but declined to comment on a report that a deal has been reached.

China levies a 25 percent duty on sales of imported vehicles and has not allowed foreign automakers to establish wholly owned factories in the country, the world's largest auto market. Those are problems for Tesla, which wants to expand its presence in China's growing electric vehicle market without compromising its independence or intellectual property.

China's government has considered allowing foreign automakers to set up wholly owned factories in free trade zones in part to encourage more production of electric and hybrid vehicles - which the government calls "new energy vehicles" - to meet ambitious sales quotas.

Tesla would still have to pay a 25 percent duty on cars built in a free trade zone, but it could lower its production costs.

Tesla Chief Executive Elon Musk has said the company eventually will need vehicle and battery manufacturing centers in Europe and Asia.

Tesla is trying to accelerate output of its new Model 3 sedan, but conceded earlier this month that production bottlenecks had held third-quarter production to just 260 vehicles, well short of the 1,500 previously planned.