The project will help with the flexible adjustment of grid resources, and "effectively solve pressures relating to urban power supply," Tesla said in a post to the Chinese social media platform Weibo.
"After completion, this project is expected to become the largest grid-side energy storage project in China," Tesla added.
Such energy storage systems help to enhance stability in the electricity grid at a time when there are greater supplies of solar and wind power.
Chinese media outlet Yicai reported that Tesla Shanghai, Shanghai authorities and China Kangfu International Leasing Co. held a signing ceremony Friday for the project.
It added that the deal involved investments of 4 billion yuan ($560 million).
The contract comes at a moment of tension between Washington and Beijing, with the two sides yet to hash out a long-term trade agreement following tariffs announced by President Donald Trump.
China and the United States negotiated a "framework" agreement in London earlier this month following two days of marathon talks.
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