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Tesla Won't Lose Chinese Customers To Trade War

Industry News / 5 Comments

But is this a good long-term solution?

There seems to be no end in sight for the ongoing US-China trade war. Instead of working out a final deal, the two countries are continuing to slap tariffs on many products, including vehicles. Obviously, this will hurt US-based automakers such as BMW, who have production plants here exporting models to China. But Tesla has figured out an alternative solution.

According to Reuters, the California-based EV automaker will cut the price of its Model S and Model X in China by 12-26 percent in order to make them more affordable in the world's biggest car market. But wait? Cutting the price even with tariffs attached? Exactly.

"We are absorbing a significant part of the tariff to help make our cars more affordable for customers in China," Tesla said in a statement sent to Reuters. What's the point of selling cars if not enough people actually buy them?

What's also interesting about Tesla's decision is that it was one of the first US automakers to increase its Chinese market prices in response to tariffs, specifically the prices of the Model S and Model X by about 20 percent.

Only last month Tesla said it was facing challenges selling cars in China because of those newly-imposed tariffs. A longer term solution is to accelerate investment in its new Gigafactory in Shanghai, the first of its kind to be built overseas.

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Once it's up and running, local battery production will significantly help avoid expensive import tariffs. But absorbing a good chunk of those tariffs is only a short-term answer. The ultimate solution, obviously, is to shift as much production as possible to China. Not only will that enable it to avoid tariffs entirely, but will provide greater access to additional Asian markets.