A new Tesla auto factory to serve the European market will be based in Germany, chief executive Elon Musk said on Tuesday.

People visit a Tesla stand during the second China International Import Expo in Shanghai on Wednesday. Tesla said it will increase investment in the Chinese market, which has great development prospects, dismissing US calls for US companies to relocate amid the US-launched trade war. Photo: AFP

Musk said during a ceremony at Germany's Golden Steering Wheel awards that the new "Gigafactory" would be "in the Berlin area."

He said the company planned the facility "near the new airport" in Berlin and that Tesla would also set up a design center in the area.

"Everyone knows that German engineering is outstanding and that's part of the reason we are locating our Gigafactory Europe in Germany," he said on stage.

"We are also going to create an engineering and design center in Berlin because I think Berlin has some of the best art in the world."

The news highlights a further global expansion for the electric car maker, which last month said its factory in China had started production.

Musk offered few details, but reports have said the company hopes to begin European production by 2021.

"Giga Berlin," Musk tweeted, bookending the words with heart emojis.

"Will build batteries, powertrains & vehicles, starting with Model Y," he added in another tweet.

Tesla is estimated to have some 30 percent of the European market for battery-powered cars.

Musk's announcement is good news for the German auto industry, according to Professor Ferdinand Dudenhoeffer of the Center for Automotive Research at the University of Duisburg-Essen.

Tesla producing electric cars in Germany could wave a checkered flag at the local competition, such as Volkswagen, BMW, and Daimler, speeding up innovation in the sector there, Dudenhoeffer said.

Tesla last month announced that it posted a profit in the recently ended quarter instead of taking a loss as analysts expected.

Tesla said it is producing vehicles "on a trial basis" at its recently opened "Gigafactory" in Shanghai, which will help boost global production and sales.

Musk was optimistic that the Shanghai factory could begin cranking out Model Y vehicles by the middle of next year, and believed the new model has the potential to be a huge seller.