BYD already produces electric cars that are even subsidized in many cities. However, the people in Beijing buying Teslas would rather buy a BMW or Audi anyways if they could get the license plates for them, and they wouldn't be caught dead in a Chinese-brand car (and the way the BYD electric taxis have been rumored to just explode, they think being caught dead in them is a possibility).
If Chinese demand is sufficient, I'm sure tesla would just open up a factory or two in China to supply it. They might even take on a Chinese partner in a JV given that they are so willing to share patents with competitors anyways (with the bonus that the partner would provide much of the RMB capital to startup, it's the one thing China has a lot of).