Amid an escalating trade war between the U.S. and China, Tesla has both raised the price of its cars there to reflect higher tariffs and signed a deal with the city of Shanghai to build a big plant there to build up to 500,000 cars a year in China.
Tesla CEO Elon Musk was in Shanghai today for a signing ceremony for the factory deal, according to Reuters. The Shanghai government said it welcomed Tesla's agreement to invest in a new factory for cars and batteries, as well as to invest in research and development there. The move came just after Tesla became the first automaker to pass along costs of higher tariffs on its U.S.-made electric cars. The tax, which had been lowered to 15 percent from 25 percent on July 1, was boosted by China to 40 percent on Friday after the U.S. imposed higher tariffs on many goods from China, including automobiles.
In response to the lower tariff, Tesla had briefly cut prices in China 6 percent but wiped that out with price increases over the weekend of about 20 percent, according to The Wall Street Journal. It said a Model S sedan now is priced to start at about $128,400 in China, up from $107,300 last week, and Model X SUV starts at about $140,100, compared with $117,100.
The new Tesla plant would be the first in China that is fully owned by a foreign company and not a joint venture with a Chinese partner, which until now had been required for foreign automakers wanting to build cars there. Tesla confirmed an aggressive timeline for the new plant, hoping to be building cars in about two years and then ramp up over two or three years to full capacity. At the projected 500,000-vehicle output, it would be a huge plant, nearly equaling the capacity of Toyota's largest plant in the world, its complex at Georgetown, Ky., that has a capacity of 550,000 vehicles per year. Tesla said the new plant would not affect continued expansion of its U.S. operations.
China is a key market for Tesla; it is both the world's largest car market and the largest market for electric cars. The government is making a major push toward all electric vehicles, and annual sales could reach a million this year, according to Bloomberg, which said the government target is 7 million vehicles a year by 2025. It remains to be seen how Chinese luxury car buyers will react to the higher Tesla prices; other foreign luxury car makers have yet to announce their plans. Tesla sold 14,779 vehicles in China last year, according to Bloomberg data from LMC Automotive, and public filings show that China generated about 17 percent of Tesla's 2017 revenue.
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