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Tesla moves first to hike prices in China as trade war hits car makers

Reuters  |  BEIJING/SHANGHAI 

By Shirouzu and Brenda Goh

BEIJING/(Reuters) - U.S. carmaker has hiked prices on its Model X and S cars by about 20 percent in China, the first automaker to do so in the world's top automotive market in response to mounting trade tensions between the countries.

The move is the earliest indication of how much higher Chinese tariffs on certain U.S. imports will flow through to buyers, with other automakers likely to follow suit or shift a greater portion of production to

"It's only chapter one of this story," said James Chao, a Shanghai-based at consultancy IHS Markit, who expects more companies worldwide to be hurt by the trade spat.

slapped retaliatory tariffs of 25 percent on imports of several U.S. products, including cars, after U.S. imposed tariffs on $34 billion worth of Chinese goods.

China's tariffs are expected to hurt automakers, firms that make industrial components in the United States, and producers of soybean, whisky and other agricultural items.

For Tesla especially, rapidly burning cash and struggling to turn a profit, is key. Sales in the country accounted for about 17 percent of its revenue last year.

In May, Tesla slashed up to $14,000 off its Model X in China after said it would cut import tariffs to 15 percent from 25 percent for most vehicles from July 1.

But the latest retaliatory tariffs mean importers will have to fork out a total 40 percent duty on all U.S.-made cars they sell in China.

Tesla's price hikes kicked in over the weekend.

Its basic Model S sedan in China now costs about 849,900 yuan ($128,779), versus 710,579 yuan in May, while a Model X sport-utility vehicle costs about 927,200 yuan, versus 775,579 yuan, according to Tesla's website.

These prices are more than 70 percent higher than in the where the basic Model S sedan sells for $74,500.

"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," CFRA research said. "Considering they claim to be capacity-constrained, they should be able to shift sales elsewhere."

NEW TESLA PLANT

Tesla's price increases come as it plans to build a factory in to serve the Chinese market. The company ships more than 15,000 cars a year to China.

is expected to visit on Tuesday, reported, citing people familiar with the plans. Musk will also visit on Wednesday and Thursday, added, quoting one of the sources.

Tesla did not respond to a request for comment.

Analysts were divided on whether the price hikes will bother affluent buyers in China where, in big cities like Shanghai and Shenze, it is considered a status symbol to own a Tesla.

"Tesla consumers are a unique group of rich people. They want more of a brand image and product experience, price is less of a concern," said Zhang,

IHS Markit's Chao, however, said many wealthy Chinese buyers were becoming more price conscious.

Other foreign automakers that could announce price increases in China include German automakers and

recently said it was unable to "completely absorb" the new tariffs, while Daimler has flagged that it "aims to maintain a competitive position" in China. Both firms import U.S.-produced cars into the Asian nation.

has, however, said it would not hike prices on its imported cars for now, crimping its profit margins.

($1 = 6.5997 Chinese yuan renminbi)

(Reporting by Vibhuti Sharma and Sonam Rai in Bengaluru, Brenda and Adam Jourdan in Shanghai, and Shirouzu in Beijing; Additional reporting by Shanghai Newsroom; Writing by Sayantani Ghosh; Editing by and Himani Sarkar)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Tue, July 10 2018. 15:36 IST
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