China Blocks Model 3 Sales After Suspending Customs Clearance, Tesla Says Problem is Resolved

Update 3/5/2019, 10:58am EST: Reuters, citing "an unidentified source familiar with the matter", has reported that China's customs authorities have accepted a plan from Tesla to remedy problems with its clearance of imported cars. The details of the report were scarce, with Reuters stating that its unidentified source did not give any further details as to the terms of how the issue had been resolved.

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Tesla's awful start to 2019 is getting worse, with the latest bad news hitting the company in its most important "growth" market: China. 

Chinese customs have suspended clearance procedures for Tesla's Model 3, according to Reuters which cites Chinese financial publication Caixin. The customs authority in Shanghai found "various irregularities" in 1,600 imported Model 3 vehicles, including improper labeling of the vehicles.



As a result, China has effectively put a block on Model 3 sales, telling Tesla not to sell or use Model 3 vehicles that have already been cleared in the country. Inspectors at ports in China have also been directed by authorities to "step up inspections" of other imported Tesla models and suspend their release if similar problems are uncovered.

This news comes after a sizable fall in Tesla's stock over the last two trading days, as the market continues to digest last Thursday's $35,000 Model 3 unveiling – and the subsequent news that the company blindsided retail employees and investors by their spur-of-the-moment decision to close all of its retail stores.

Investor Alex Chalekian, who manages more than $150 million, said on Twitter: "This was a total 180-degree turn. Tesla had been talking about expanding stores, and all of a sudden they are closing them. To me, this signals a huge financial concern and a possible cash-flow issue for Tesla."

Following Sunday's Tweet from Elon Musk that Tesla would be unveiling the Model Y on March 14, Chalekian told Bloomberg: “The Model Y is probably going to eat into Model 3 sales. With all of the stuff going on right now, I don’t know if people are going to race to put down a deposit on the Y in the way they did with the 3. But Tesla is using this to raise capital through customer deposits. I feel like Tesla is just buying time at this point.

Yesterday, we also reported that protests were popping up in China and in Taiwan over Tesla's decision to slash prices on all of its models. Some buyers who purchased vehicles recently and have been forced to watch them depreciate significantly (sometimes overnight) were protesting outside Tesla stores, according to electrek.

Global Times reported on one Tesla owner, who stated: "I received Tesla’s Model X on February 25, and I only drove this car for five days before Tesla announced a price reduction of 174,300 yuan ($25,989.87). I’m probably the most unlucky new buyer…That’s unfair."

Additionally, despite various reports of Tesla coming close to securing $2 billion in financing for its Shanghai plant, no 8-K regarding financing in China has been filed yet.

To add prissy Harvard insult to Tesla's injury, even Whitney Tilson, most famous for blowing up his hedge fund twice, has officially piled on the Tesla trade, reportedly predicting in an e-mail newsletter yesterday that he believes Tesla stock will finish 2019 "under $100".

It's not shaping up to be a great year for Tesla.