The new tariffs will add 150,000 to 250,000 Yuan to the cost of Tesla’s Models S and X as a 40 percent import tax is imposed. In U.S. dollars this is about $22,600 to $37,600.
New tax comes just after tariffs had been reduced
Just a few months ago China had reduced taxes on foreign vehicles from 25 to 15 percent. This had shaved about $14,000 off the price of Tesla’s more expensive cars.
The auto industry is just one of many to be hurt by the trade war between the two countries. Car-makers rely on a global supply chain that spans the globe. Competition also results in thin margins making them vulnerable to the tariff war.
Some companies racing against the clock
Data from a number of U.S. ports show a surge both in vehicle exports and imports last May. In the US the three leading ports in the U.S. for importing autos unloaded 23,000 more cars this May than last year. Auto exports from Baltimore and Jacksonville in May were up 39 percent and 19 percent respectively according to port officials. Automakers other than Tesla have so far not put up their prices.
China is a big market for Tesla
Tesla is a relatively low volume operation and hence it is not surprising that it boosted its price early. China is a key market for Tesla as it accounts for about 17 percent of the company’s total sales as of 2017.
Even with high price tags before the tariffs, Tesla models were selling well in China. The government is pushing to phase out fossil fuels and the large size of the market makes it a tempting one for electric car makers.
Avoiding import tariffs
Many automakers have decided to build their vehicles in China thus avoiding any tariffs. However, up to now China has required foreign companies to partner with local ones in joint ventures if they want to manufacture vehicles inside the country. This lowers profit margins and puts trade secrets at risk according to some firms.
Even so Tesla has spent the last two years attempting to create a GIgafactory in China. The Chinese government recently announced that would allow him to build the factory without a joint venture. The rules have been specifically changed for those who manufacture electric cars.
A recent article reports: “As per CEO Elon Musk’s recent comments, Tesla is expected to soon announce a project for a Gigafactory in China. Ahead of the announcement, Tesla has registered a new company in Shanghai’s Free-Trade Zone – seemingly in preparation for this new manufacturing project. The new business license has been reportedly approved on May 10th, according to Sina Finance. It was registered by Tesla’s Hong Kong subsidiary and approved by the Shanghai Pudong New Area Market Supervision board.”
The article also confirms that new rules allow a foreign country to own 100 percent of a facility that makes electric cars.
