Elon Musk China Elon Musk. Reuters/Bobby Yip

Tesla will eventually make cars in China, including its first mass-market car, the Model 3, CEO Elon Musk said in a recent interview with CNN

"It will eventually be made in China," Musk said. "If it was possible to do local production in China sooner, we would, but I think it is going to be close to three years before we can achieve that outcome."

Currently, Tesla is not eligible for local incentives in China, so all vehicles sold in the country come with a very high import duty.

However, once the company begins local production it will qualify for incentives, which will help bring down the cost of selling its cars in China. 

It should be noted that production in China will be in addition to Tesla US production operations, not replacing it. 

China is a big market for Tesla to be in because of the growing demand for more eco-friendly cars. 

"I think there is an understanding by the Chinese government that electric cars are very important to the future," Musk said. 

"In order to have clean air in cities you have to go electric. And so the policies and initiatives of the national government are increasingly favoring that outcome."

The Model 3 will be Tesla's first mass market car and cost about $35,000. The company is expected to reveal the vehicle this year, but it isn't expected to go into production until 2017. 

Musk said during the interview that he is pleased with how the company's first mainstream car is coming along. 

"I do feel pretty optimistic about the Model 3. The key thing with the Model 3 is higher volume at a lower price. It is a smaller car, and without as many bells and whistles as the Model S or X. But the goal is to have a very compelling, affordable, mass market electric vehicle and I feel pretty good about that goal," he said. 

But by the time Tesla brings its more affordable car to market, it will have some competition. 

Earlier this month, General Motors showed off a production model of its $30,000 all-electric Chevrolet Bolt. GM said the Bolt will go into production in late 2016 and will have a range of more than 200 miles per charge, which is comparable to a Tesla vehicle. 

Musk doesn't seem worried, though. If anything he is excited about more car companies building electric vehicles.

"I think if GM comes to market with a compelling electric car, that's great. The goal of Tesla from the beginning has been to accelerate the advent of sustainable transport," Musk said. "So I think if GM or any other car company comes out with electric cars I think that is good for the world and we would applaud them."

Check out CNN's full interview below.