Trade war leaves Tesla in limbo

By Chi Jingyi and Chu Daye Source:Global Times Published: 2019/5/15 22:18:12

Cars from Shanghai factory still months from market

File photo: IC

A prolonged, escalating trade war between China and the US will leave Tesla in limbo, even though the company is building its first overseas Gigafactory in Shanghai to modify its status as a pure car exporter to China, analysts said.

The likelihood that China may renew placing tariffs on imported US cars as it did in 2018 may make the US-based company vulnerable in investors' eyes, despite its $2 billion Shanghai Gigafactory, said Mei Songlin, a senior auto industry analyst based in Shanghai.

Tesla's stock has been hammered by the trade war, closing at $232.31 per share on Wednesday after plunging as much as 6.3 percent to $224.50 on Tuesday, the lowest level in two years. 

China has so far demonstrated restraint in its tariff retaliation measure, with a list released on Monday covering US products worth $60 billion. 

"But should the trade war escalate further, there is a possibility that China may re-impose automotive tariffs," Mei told the Global Times on Wednesday.

The decision could depend on how the US threatened tariffs on $300 billion worth of Chinese goods will land, Mei said. An escalated Chinese tariff response could involve American made cars.

At present, all Tesla cars are imported from the US, making the company vulnerable to tariff strikes. There are still many months to go before the first China-made Tesla rolls off the assembly line, leaving a period of uncertainty. Even after the Shanghai plant opens, its Model 3s will be of the middle- and low-end configurations, while advanced and upgraded versions will still be produced in the US.

On the ground, Tesla's showroom in Beijing was calm. "Some consumers are placing orders on worries of a potential tariff hike. Sales in general are normal," a salesman surnamed Yin said.

China usually imposes 15 percent tariffs on imported vehicles. But the country hiked tariffs on US-made cars to 40 percent in 2018, forcing Tesla to raise its sales prices. In January, the tariff actions were suspended by China.

In an effort to fast-track Model 3 sales, Tesla is deploying different pricing tactics. 

"Customers just have to pay a deposit of 20,000 yuan ($2,907.7) to book a Model 3, and the money is refundable," a salesperson surnamed Xue at another Tesla store in Beijing told the Global Times Wednesday.

"This option only applies to Model 3s. For example, the deposit for Tesla's Model S is as high as 100,000 yuan," the person said.

Consumer sentiment also matters, Mei said. 

Although a prolonged trade war and souring sentiment among Chinese consumers toward US products may not affect Tesla's hardcore fans in China, it will not bode well as increased output from the Shanghai plant needs an expanding consumer base to make a profit.

"Such sentiment can have long-term effects, from Japanese cars to South Korean supermarkets. There are plenty of precedents," Mei said.

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