Tesla will slow production in China because of tensions between the China and US, they said.
The expanded Shanghai plant would have allowed Tesla to produce 200,000 extra vehicles, they said.
Tesla no longer intends to buy land to increase capacity at its Shanghai factory, Reuters reported.
Tesla also plans a general slowdown in China-based production despite soaring revenues in the country, sources familiar with the matter told Reuters.
The electric-car maker was expected to bid on a plot of land next to its Shanghai factory, but did not make a bid, the sources said. The plot was about about half the size of its current 80-hectare facility, they said.