Trade War Sends Tesla Prices Surging In China And Elon Musk Is On The Way To Shanghai

Last week, following the Trump administration’s decision to move ahead with tariffs on $34 billion in Chinese goods, BMW said it could not fully absorb the impact from China’s countermeasures on vehicles made in Spartanburg, South Carolina.

Faced with the prospect of either taking a hit to the bottom line or raising prices to Chinese customers, BMW decided to go the latter route, a move that of course imperils market share in the event consumers are unwilling to pay up.

The read through for workers who produce BMWs in the United States is obvious: if BMW does indeed begin to see slower sales in Chinese end markets as a result of the higher prices they are now being forced to charge, it’s possible the company will simply cut investment and employment at U.S. production facilities. BMW said as much in a letter to Wilbur Ross sent late last month.

Of course BMW is hardly the only company that’s struggling to figure out what comes next now that Washington and Beijing look set to be locked in a war of attrition for the foreseeable future. Everyone from General Motors to Harley-Davidson to the US Apple Association is fumbling around in the dark at this point.

And while I would venture to say that the tariffs are not at the top of the list when it comes to Tesla’s concerns, it is worth noting that on Monday, Electrek reported that the company raised the price of the Model S and Model X in China by 150,000 yuan to 250,000 yuan (~$22,600 to ~$37,600).

Here’s a bit more color from the article, which notes that one of the more tragic ironies inherent in this entire trade charade (fun alliteration alert), is the fact that China recently made a move to open up its auto market:

Tesla exports more electric vehicle to China than any other automaker today, but the company’s exports are likely to slow down as it raises the price of the Model S and Model X significantly due to rising tariffs as part of the current escalating trade war.

[…]

The company was preparing a massive push in China as import duties were planned to fall and local manufacturing is coming.

Prices of the Model S and Model X were decreased by 40,000 yuan to 90,000 yuan (~$6,000 to ~$14,000 USD) back in May.

An announcement about a Tesla factory in China was expected soon now that the automaker has set up a new company in Shanghai’s Free-Trade Zone.

“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,” The Verge wrote on Monday, underscoring that point and adding that the now meaningless price cuts had, in some cases, “shaved up to about $14,000 off the price of Tesla’s more expensive models.”

If this ends up reducing demand in China, it would be latest piece of bad news for a company that has spent the better part of six months serving up disappointment after disappointment. Things turned around recently, when Model 3 production finally hit a milestone.

China accounts for a sizable chunk of Tesla’s revenue and being forced to lift prices materially isn’t the best news in the world. Here’s CFRA’s Efraim Levy:

Raising the prices is going to hurt sales, but money losing Tesla has to raise prices because they can’t afford to fully absorb to the higher costs of tariff. Considering they claim to be capacity constrained, they should be able to shift sales else where.

So I guess if you look hard enough, there’s a silver lining in there.

As if on cue, Bloomberg reported on Monday morning that Elon Musk is now set to meet Chinese government officials at an event in Shanghai on Tuesday.

“While details of the trip weren’t immediately available, Tesla has been working on setting up a production facility in China for more than a year,” Bloomberg reminds you.

Hopefully, he won’t call anyone an “absurd bonehead.”