Is Tesla The Biggest Loser In The Trade War?

Authored by Tsvetana Paraskova via OilPrice.com,

A few years ago, Elon Musk said that Tesla could sell more cars in China than in America in the long term, because the Chinese market is just so huge.

Indeed, China is currently Tesla’s second-largest market in terms of revenues behind the United States. But the escalating trade war between China and the United States could complicate Tesla’s mission to successfully compete on the rapidly growing Chinese EV market where local EVs are also advancing at an impressive rate.

In the trade spat, China has just announced that it could add more tariffs on imported American cars, on top of an existing 25-percent import duty for foreign-made vehicles. For carmakers without local Chinese manufacturing—such as Tesla—more tariffs would render their cars even more expensive niche products.

On the one hand, Musk has praised China’s EVs policies. But on the other hand, he has also called on U.S. President Donald Trump to level the playing field for car tariffs between the U.S. and China—and he did this a couple of weeks before the current heated trade row.

Musk has been trying to reach a deal on a local Tesla factory in China, but reports have it that he refuses to allow China to own a piece of the plant.

Earlier this year, reports suggested that Tesla and China disagree over the future ownership of a Tesla factory in Shanghai, which means that without local Chinese production, the U.S. EV maker continues to face high import taxes that make its cars much more expensive than those of local rivals.

China insists that all vehicle-manufacturing plants should be joint ventures with local partners, and currently all foreign carmakers must have a Chinese partner to manufacture vehicles locally. But Tesla wants to have full ownership of the future factory. Producing Teslas locally could help Tesla sell its EVs cheaper in China, which is pushing for an aggressive adoption of EVs with policies for carmakers selling or importing vehicles. In what has been dubbed “the world’s biggest EV plan”, China is introducing a so-called cap-and-trade policy, under which all carmakers—local manufacturers or importers with more than 30,000 traditional car sales annually—must earn a score of at least 10 percent for zero or low-emission vehicles, beginning in 2019.

Theoretically, the huge Chinese market and the Chinese EV policies would have been the perfect ground for Tesla to beat its competition in China. But the 25-percent import duty and the growing possibility of Beijing slapping more tariffs on U.S. cars could slow down Tesla’s sales.

Last year, Tesla raised its revenues in China to US$2 billion, up from US$1 billion in 2016, its 2017 annual report shows. China is the second-largest market for the EV maker after the United States.

Now the escalating U.S.-China trade war could make things more difficult for American carmakers, and Tesla in particular. In the latest tit-for-tat, the U.S. proposed tariffs on products from sectors such as information technology, communication technology, robotics, and aerospace. China retaliated by announcing new tariffs on 106 U.S. products, including cars. If China follows through with this retaliation by slapping tariffs on cars and car parts, Tesla—without local production, unlike almost all other foreign carmakers including Detroit’s Big Three—will suffer the most, according to analysts.

“The jump in tax levy hurts Tesla the most as it had not yet started local production in China,” Cui Dongshu, the secretary general of China’s Passenger Car Association told Bloomberg. “For GM and Ford, they can always make up with China-produced ones.”

Barclays analyst Brian Johnson also thinks that Tesla will be the most hurt U.S. carmaker from the trade war. If China follows through with its promise to retaliate to the currently proposed U.S. tariffs, Tesla buyers in China may have to pay a 50-percent tariff.

“The tariff will add an extra premium on top of a vehicle price that was already ahead of the base U.S. price, related to transport costs and duties,” Johnson wrote in a note Wednesday, as carried by CNBC.

“And while these steep import tariffs are part of the upper-end luxury market (and in some respects add to the prestige factor for luxury cars), for lower-luxury vehicles than the Model 3, a 50 percent premium would be significant,” the analyst said.

Comments

FireBrander alexcojones Fri, 04/06/2018 - 15:34 Permalink

"the huge Chinese market"

Full of "car buyers" with an average annual wage of $10,600...how much is a base Tesla again?

30% of income to your car payment = $265 month
2.25% car loan.
$50,000 Telsa
That'll be $265 a month for about >>21 YEARS<

If you want a 7 year car loan, that'll be $644 an month...or 73% of your GROSS income!

How many cars does Telsa think it can sell in China with numbers like that?

In reply to by alexcojones

not-me---it-wa… FireBrander Fri, 04/06/2018 - 16:01 Permalink

china has around 1.4 billion, tens of millions in poverty earning less than a buck a day, with hundreds of millions still earning what we would consider slave wages.  but on the other end of the spectrum ....

" The number of Chinese with at least 10 million yuan ($1.47 million) of investable assets hit 1.6 million in 2016 "

 

In reply to by FireBrander

RAT005 RAT005 Fri, 04/06/2018 - 17:21 Permalink

Regarding China starving.  Key things to understand:

1. Land area of China is within a few % of USA and I don't think they have the losses to desert that we do.  But there are 4 times more people than USA.

2. Victory gardens are very popular there, compared to USA with not too much interest.

3. From my travels there, the thing that amazed me is how little tractors and such there are.  I never saw one in weeks of traveling the countryside.  A farmer takes care of 5 acres by hand and maybe an ox.  Similar to our farmers markets are everywhere every day.  Many chinese prefer to buy from the fruit/veg stand in their condo parking lot rather than the market.

4. If Chinese gov. subsidized coop style access to tractors and equip. productivity could go way up.  There is also no mechanized irrigation.  All upland dry farming.  In general, China has a water supply problem because of population and surface pollution.  They are using desalination but I don't think they have very good supply of cheap power.

5. There are places much poorer than China that are happy to sell them food.

In reply to by RAT005

not dead yet alexcojones Fri, 04/06/2018 - 16:10 Permalink

Tesla gets credit for tech they did not develop themselves such as batteries which is all Panasonic. It was Mobileye that worked with Tesla on self driving tech. Used to work as Mobileye pulled out well over a year ago saying they didn't want any part of what Tesla was doing to their tech. With the way the FED's quickly pile in on Tesla accidents it seems to indicate there is a huge problem with their cobble job self driving tech. Last year "genius" Musk touted how all of his cars were all equipped for self driving BUT the software was not yet developed to utilize this function and would be available in a year or so. Just like his miracle batteries for his big rig. Like most of Musks pronouncements more blather for free publicity but more bullshit than fact.

In reply to by alexcojones

not dead yet not-me---it-wa… Fri, 04/06/2018 - 16:38 Permalink

Russia is the 2nd largest exporter of wheat on the planet and all their agriculture is steadily improving from the disaster of the Soviet Union. Putin's main goal, besides keeping the US from destroying Russia, is to make Russia self sufficient. China can look to Russia not only for gas and oil but can hit them up for food. The US instead of playing off Russia and China against each is driving them together. Other countries are lining up to cut deals with Russia and China even at the risk of US sanctions. The whole world is starting to flip the bird at the US so there will be plenty of areas China can exploit to get food or whatever. Unlike the US China is trusted and respected in Africa. Africa may not be big in soybeans or whatever but if there is a market Africa could step up, even if the Chinese have to supply the farmers and infrastructure. Years ago when they tried growing coffee in Africa it was claimed it would never work. Now lots of coffee is grown there. Agriculture exports of the US are huge and the trade deficit would be more obscene without them. If Russia and China go into the 3rd world hellholes and get them to grow more food it could be the death knell for many American farmers and US influence. Also note that Australia is inviting the experienced and hard working farmers from South Africa and Africa to emigrate. Aussies have a great business relationship with China and are a lot closer.

Some have mentioned the rare earths that could be cut off from China could be sourced from Afghanistan. Good luck getting a major mining operation going there with the Taliban killing your asses. The US has so fucked up the area and has created so many terrorists trying to mine in Afghanistan or get a pipeline, especially if Assad is forced out, through Syria will not happen for decades. Trumps flip flop proves the US has not given up on removing Assad.

In reply to by not-me---it-wa…

deev Bill of Rights Fri, 04/06/2018 - 17:56 Permalink

Just wow, the world doesn't start and end in the USA, dumbass. There are plenty of countries willing and able to supply food to China, not to mention their own capabilities to grow food, as they have been feeding themselves for centuries.

 

The good thing about Tesla failing to sell in China is maybe now their cars will become available in the rest of the world sooner. Chinese EV's will be far cheaper than the Tesla anyway, Musk was probably overestimating what the Chinese would pay for a Tesla.

In reply to by Bill of Rights

TalkToLind Fri, 04/06/2018 - 15:25 Permalink

Doesn't Agent Orange realize that 98% of our GTD's (goyim tracking devices) are made in China?  Maybe he became confused because smartphones have English sounding names, like Apple.

rosiescenario Fri, 04/06/2018 - 15:30 Permalink

Off Topic:

Which place has gun control?

 

" Tijuana sits on the U.S. border with California, approximately 17 miles south of San Diego. A brief look at both cities reveals that San Diego has a population of 1.4 million compared to Tijuana’s 1.8 million. In 2016 and 2017 respectfully, Tijuana finished with 910 and 1,734 homicides while San Diego registered 50 and 34 for each year in straight comparisons, local journalists found at the time. "

 

I really do not understand why the NRA does not point out the obvious?????

flapdoodle Fri, 04/06/2018 - 15:35 Permalink

The Chinese will take over the electric vehicle market - bank on it. They are masters at "good enough" which used to be the main trait of US engineering.

Want an example? How about the Segway scooter - brilliant US engineering, but the damn thing was too expensive so only Mall Police could afford one ;)

The Chinese jumped in and made a toy 2 wheel sideways skateboard and the thing is very effective, and dirt cheap, and balances really well.

If you've ever taken apart Chinese junk, they are masters at providing the absolute bare minimum of what works and they will do the same with their electric cars - just watch. The problem is that Chinese have figured out that quality is still important, for reputation if nothing else, and they are quickly learning how to improve their products - and US manufacturing quality was never that high anyway (vis Detroit).