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Tesla Might Lose Big in U.S. China Trade War

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【Summary】The increasing demand of new energy vehicles in China including hybrids and all-electric vehicles seems like a promising prospect for Tesla but the company faces a threat which may lead to it losing on that potential market share and incur substantial losses along the way.

Manish Kharinta    Jun 15, 2018 2:51 PM PT
Tesla Might Lose Big in U.S. China Trade War

Tesla has positioned itself as the ultimate luxury electric vehicle manufacturer in the global Automotive industry and China with its government mandate is likely to soon become the largest EV market in the world. 

The increasing demand of new energy vehicles in China including hybrids and all-electric vehicles seems like a promising prospect for Tesla but the company faces a threat which may lead to it losing on that potential market share and incur substantial losses along the way.

It is possible that United States' tariff conflict with China will affect the sales of American cars in the People's Republic. Tesla amongst other automakers might face a sizeable decline in their sales figures. The demand for plug-in hybrid and electric vehicles in China is far greater than that in other markets including North America and Canada.

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Recently the United States announced that it is going to impose tariffs on Chinese-made goods. The Republic of China also said that it plans on reciprocating by imposing tariffs of its own on products from the USA. These US made goods include Tesla's lineup which is manufactured in America and is exported to China which happens to be its largest export market even now.

Tesla sales in China constitute 17 percent of the company's revenue. In the year 2017, the electric car manufacturer sold over 14,000 vehicles. This only accounts for 3 percent of all electrified offerings sold in the Chinese market which include hybrid, plug-in hybrid and electric vehicles.

At 3 percent, Tesla's market share seems insignificant for China, but as Tesla is a luxury automaker and Chinese market is a vital source for the company's revenue. With nearly one fifth of the company's revenue coming from China, Tesla cannot afford to lose its market share in the country. 

In February, the United States exported 2,323 vehicles with electric drivetrains to China. A sizable number of these battery-powered vehicles were Teslas. 2160 vehicles out of the total electric vehicle export of 2,323 were vehicles from the American luxury EV manufacturer.

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Tesla happens to be one of the few automakers which export goods manufactured in North America to China. Other car makers are not as vulnerable to similar levels of risks as Tesla because most of them have a joint venture with China. These joint ventures are a result of China's joint venture formation requirements. These companies have been in partnership, manufacturing their products locally in China for decades.

As Tesla is a luxury product, it is sold with a price tag which charges a premium. Adding to that, the offerings are already subjected to a 25% import tax. If the trade war between North America and China results into any for the tariffs being imposed on Tesla's range of vehicles in China, it will put the prices of Tesla's lineup in a higher luxury car segment.

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