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Trade war bumps up Tesla prices in China

Trade war bumps up Tesla prices in China


The auto industry starts a scramble

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Photo by Amelia Holowaty Krales / The Verge

The price of a Tesla has gone up in China following the country’s first round of retaliatory tariffs in the burgeoning trade war with the United States. Tesla Models S and X now cost as much as 150,000 yuan to 250,000 yuan more (or about $22,600 to about $37,600) after the 40 percent import tax hike, according to Electrek and The Wall Street Journal.

The whiplash price bumps come just a few months after China actually lowered import taxes on cars from foreign automakers from 25 percent to 15 percent. That shaved, in some cases, up to about $14,000 off the price of Tesla’s more expensive models.

The auto industry is just one of many caught in the crosshairs of the trade war that President Trump has started with China. But it’s particularly vulnerable to volatility because carmakers pull from a supply chain that’s spread around the globe, the biggest ones rely on operating on multiple continents, and there are thin margins built into the general high cost of cars (compared to, say, phones or soy beans).

In response to the tariffs, some automakers tried to race the clock by shipping as many cars as they could before the new tariffs hit. And most have, so far, held off on implementing their own price bumps.

China is a huge market for Tesla

Compared to the Daimlers and Fords of the world, though, Tesla is still a fairly low-volume operation, so it’s no surprise that it was one of the first to change its pricing. China is also a key market for Tesla, accounting for about 17 percent of the company’s revenue in 2017, according to Reuters.

Even with a high price tag before the new tariffs, Teslas sold well in China relative to other cars. The company is the leading foreign manufacturer of electric vehicle by sales, eclipsed only by some of China’s biggest national EV sellers. And there’s room to grow. The country’s aggressive push to phase out fossil fuels, along with its sheer size, makes it the biggest market for electric cars.

One way to avoid getting caught in the import tariff crossfire is to build the cars in China. Many automakers do this already, despite the fact that China forces foreign car companies to partner with local ones in joint ventures in order to manufacture inside the country. (It’s a move that ultimately lowers profits and also puts trade secrets at risk, some companies say.)

Even in the face of this, Tesla spent the last two years trying to secure a spot for a new Gigafactory in China. But the Chinese government recently announced that it plans to change those rules, with the limitations initially being lifted specifically for companies that are making electric vehicles. That could make it easier for Tesla to finally start putting together a manufacturing operation in China, and there are signs the company is already doing just that.

Earlier this year, CEO Elon Musk tweeted at Trump, calling China’s import tariffs and joint venture practices unfair. Shortly after news broke about tariffs, Bloomberg reported that Musk would be visiting China later this week at a government event, although further details of his trip have yet to be announced.

Update July 9th, 10:10am: Added information about Elon Musk’s upcoming visit to China.