Tesla Catches Break on China Auto Tariffs

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Tesla shares get a slight boost after China announces auto-tariff exemption…

Citing a statement made by the Ministry of Industry and Information Technology, Reuters reported on Friday that China will exempt Tesla electric vehicles from purchase tax. Tesla shares increased by more than 4% during premarket trading after the report was released.

China had previously paused auto tariffs in April. But then last week, it announced its plans to apply a 25% tariff on cars imported from the U.S. and a 5% tariff on auto parts starting December 15.

These tariffs would have had a significant impact on Tesla as the company currently imports all of its vehicles from the U.S. Though, the electric vehicle manufacturer is opening a plant in Shanghai with plans to start production this year.

Tesla Hikes Prices in China

Separately, Tesla said on Friday that it raised prices on some of its vehicles sold in China in response to the weakening Chinese yuan.

The starting price for a basic imported Model 3 sedan increased to 363,900 yuan, or $50,900, while prices for basic level Model S and Model X vehicles increased to 793,900 yuan and 809,900 yuan, respectively.

Tesla Faces Tough Competition

China could be a major part of Tesla’s future growth. The company previously said that its Shanghai plant will eventually manufacture 500,000 vehicles per year, with an initial goal of 150,000 cars per year.

China certainly has a market for electric vehicles. In 2018, more than 1.2 million EVs were sold in the country, accounting for around 60% of global EV sales.

EV sales in China are likely to increase moving forward … The country claims goals to reduce emissions by eventually eliminating the production of gas-powered vehicles.

As China continues its efforts to replace gas-powered vehicles with EVs, Tesla’s competition will likely increase dramatically as major companies like Toyota and Volkswagen start producing their own electric vehicles.

Although China has a major market for electric vehicles, analysts suggest that selling enough EVs to make a profit will be a challenge. Robin Zhu, an analyst at Sanford C. Bernstein, stated, “I don’t think anybody will sell an EV profitably in the next two to three years: start-ups or incumbents or Tesla.”

Recent Struggles

While Tesla seems to have caught a break in the ongoing trade war between the U.S. and China, the company has had its fair share of struggles in 2019.

Recently, the auto manufacturer reported widening losses and lower-than-expected revenue. This disappointing earnings report, along with the departure of the company’s chief technology officer, caused shares to fall nearly 15% at the time.

Earlier this month, Tesla was also the subject of a lawsuit in which Walmart accused Tesla of breach of contract after Tesla solar panels allegedly caused fires at several Walmart locations across the U.S.

2019 has been a tough year for Tesla. While the company has shown signs of growth, it has continuously had to face challenges such as these. As a result, many investors find it difficult to remain optimistic regarding the company’s future.

Tesla shares are down 33% so far in 2019, compared to the S&P 500 gain of about 17%.

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