(Updates with Tesla CEO and Shanghai govt official quotes)
SHANGHAI, Jan 7 (Reuters) - U.S. electric car maker Tesla Inc said it has started work on building Model Y electric sports utility vehicles (SUV) at its $2 billion Shanghai factory, marking a new milestone for the company's first foreign car plant.
The event comes just over a week after Tesla started delivering Model 3 vehicles built at the factory that was up and running in just 357 days - a record for global automakers in China. The first batch of sedans were handed to its employees.
Tesla delivered China-made Model 3 cars to 10 customers from the public on Tuesday.
"We are holding today a ceremony to mark the start of the China-made Model Y program," senior Shanghai government official Zhu Zhisong said at the ceremony, also attended by billionaire CEO Elon Musk, Shanghai Mayor Ying Yong and other senior government officials.
Musk said that "ultimately Tesla Model Y will have more demand than probably all the other cars of Tesla combined."
Construction of Tesla's first plant outside the United States began in January and production started in October.
The factory started with a production capacity of 150,000 Model 3 sedans and Tesla aims to push that to 250,000 vehicles a year, including Model Y, in the plant's first phase.
Shanghai Vice Mayor Wu Qing said he hoped to see Tesla extend its cooperation with the city and for the car maker to manufacture more models at its Chinese plant.
Tesla unveiled its Model Y in March 2019 and said in October that production of the electric compact SUV at its Fremont facility was running ahead of schedule.
It has said that margin expectations are higher for Model Y than Model 3, while production costs are roughly the same.
Tesla's China website estimates the starting price for Model Y vehicles at 444,000 yuan ($63,911.56). It will announce retail price later, the website says. The China-made Model 3 sedans are priced at 355,800 yuan before subsidies. ($1 = 6.9471 Chinese yuan) (Reporting by Yilei Sun and Brenda Goh; Editing by Himani Sarkar)