The project was announced last April after boss Elon Musk presented a vague but ambitious plan to investors to turbocharge growth.
However, the company last month reported a 55 percent drop in quarterly earnings, reflecting a decline in EV sales in an intensively competitive market.
The new Shanghai factory should make 10,000 units per year of Tesla's Megapack batteries, state news agency Xinhua said.
Tesla says Megapacks are intended to store energy and stabilise supply for power grids, with each unit able to store more than three megawatt-hours of power.
The factory is expected to start mass production in 2025, state media said in May.
"I believe the new plant is a milestone for both Shanghai and Tesla," the company's vice president Tao Lin told Xinhua.
"In a more open environment, we can... supply the global market with large-scale energy-storage batteries manufactured in China."
Musk has extensive business interests in China and is a fairly frequent visitor.
In April, he met Chinese Premier Li Qiang, and received a key security clearance for Tesla's locally produced EVs.
Musk's interests in China have long raised eyebrows in Washington -- President Joe Biden has said in the past that his links to foreign countries were "worthy" of scrutiny.
The battery plant will be Tesla's second in the Chinese city after its enormous Shanghai Gigafactory, which broke ground in 2019.
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