SHANGHAI - Tesla plans to step up output at its Shanghai plant over the next two months to meet demand ignited by aggressive price cuts on its best-selling models, according to a planning memo seen by Reuters and a person with knowledge of the plan.

The automaker plans to produce a weekly average of nearly 20,000 units at its Shanghai factory in February and March, according to the memo, which detailed output plans for Tesla's most productive and profitable manufacturing hub.

That level of production would take the plant's output to roughly its rate in September, when it turned out 82,088 Model 3 and Model Y cars, according to data from China Passenger Car Association.

Tesla did not immediately respond to a request for comment on Wednesday. The source spoke on condition of anonymity because the details of the plans are not public.

In December, the Shanghai plant had cut output by about a third from November, and extended a Lunar New Year holiday period for workers in January, to cope with rising inventory, before its price cuts of between 6% and almost 14% in China.

On a conference call last week to discuss Tesla's fourth-quarter results, Chief Executive Elon Musk said orders were roughly double production in January after global price cuts.

Musk said 2023 deliveries could hit 2 million vehicles, so long as there was no external disruption.

Tesla's price cuts in China have sparked what analysts have described as a price war, as Chinese automakers Xpeng and Seres' Aito have followed the company in cutting prices.

In the first 29 days in January, Tesla's average daily retail sales in China surged 36% over the corresponding period a year earlier, to 25,686 vehicles.

The growth was slightly higher than that of major competitor BYD, while overall car sales fell 45%, data from China Merchants Bank International showed.

Tesla's Shanghai plant produces vehicles for the China market and for export to Europe.

(Reporting by Zhang Yan and Brenda Goh; Editing by Clarence Fernandez)