The U.S. luxury carmaker, which generated 17% of its 2017 sales from China, could relocate some of its carmaking activities to China.
In response to the burgeoning U.S.-China trade war, Tesla has become the first automaker to raise the prices of its cars in China. The U.S. carmaker has hiked up the price of its Model X and Model S by around 20%.
Since China is the world’s largest car market, other automakers are either likely to follow suit or are likely to relocate a greater portion of their car manufacturing activity to China.
Higher prices of car models from U.S. carmakers who depend on China for generating higher revenues are likely to be affected.
“Raising the prices is going to hurt sales, but money-losing Tesla has to raise prices because they can’t afford to fully absorb the higher costs of the tariffs,” opined Efraim Levy, a research analyst at CFRA. “Considering they claim to be capacity-constrained, they should be able to shift sales elsewhere.”
For Tesla, which is struggling to turn a profit, China is a key market with sales in the country accounting for nearly 17% of its 2017 revenues.
Earlier this year in May, it slashed the price of its Model X in China by $14,000 following China’s move to cut major tariffs on imported automobiles. However, in light of the new tariffs, the earlier gains have now been erased.
Beijing’s tariffs are expected to hurt U.S. automakers as well as companies which make industrial components in the United States. China is also targeting U.S. agriculture produce including soybean and whiskey.
With Tesla shipping more than 15,000 cars a year to China, the U.S. carmaker plans on building a factory in Shanghai to serve the Chinese market. Towards this end, as per a Bloomberg report citing sources familiar with the plans, Elon Musk is expected to visit Shanghai on Tuesday and is likely to drop in to Beijing on Wednesday.
Tesla’s spokeswoman did not respond to a request for comment.
German carmaker BMW, which also manufactures its vehicles in the U.S for sale in China, has also flagged a raise in its vehicle prices. On Friday, it had said, it would be unable to “completely absorb” the new tariffs.
According to German carmaker, Daimler AG which imports U.S.-made cars into China, it “aims to maintain a competitive position” in China.
On Thursday, U.S. carmaker Ford Motor Co stated it would not hike prices on its imported cars, for now.