Electric-car company Tesla (NASDAQ:TSLA) is planning a surprise announcement in China on Friday, May 31, according to a Tesla post on Weibo, a Chinese social network. A day later, Tesla launched an online contest in China for people to guess the price of the made-in-China Model 3 -- suggesting the mysterious announcement has something to do with a Chinese version of the vehicle.

This planned announcement comes as Tesla is making significant progress on its Gigafactory Shanghai -- a factory for building Model 3 vehicles in Shanghai. The automaker hopes building vehicles in the country will reduce costs for Model 3 in the important market while increasing global production and deliveries.

Elon Musk at the groundbreaking event for Tesla's Gigafactory 3 in China.

Image source: Tesla.

Bringing Model 3 to China

Tesla's Gigafactory Shanghai is a massive undertaking that Tesla started to construct in January. Initially, the company is aiming for Model 3 production of 3,000 units per week in China. But Tesla doesn't expect to reach volume production of the vehicle until sometime between the fourth quarter of this year and the second quarter of 2020.

"Local manufacturing is an essential component of our ability to provide to customers in the region a truly affordable version of Model 3," Tesla explained in its fourth-quarter shareholder letter.

According to management's commentary on its Gigafactory Shanghai in Tesla's first-quarter shareholder letter, the China-based Model 3 production line will come online faster and more efficiently than the line at the company's factory in Fremont, California. "Learning from our experience, we can now build a second-generation Model 3 line in China that we expect will be at least 50% cheaper per unit of capacity than our Model 3-related lines in Fremont and at Gigafactory 1," Tesla said.

With Tesla planning a special announcement in China this week, it's possible that the automaker is planning to launch a version of Model 3 with specifications catering to the local market.

A key catalyst

It's no surprise Tesla is investing heavily in the country. Not only is China the world's largest auto market but it's been the source of a large portion of Tesla's growth in recent years. Revenue in China in 2018 was $1.8 billion, or 8% of total revenue. While revenue from China was higher in 2017, at $2 billion, the market's revenue was only $1.1 billion in 2016 and $319 million in 2015. 

Further, a local market will not only help reduce manufacturing costs but help Tesla bypass Chinese import tariffs, making the Model 3 as competitive as possible when it comes to price.