Tariff blues: price hike derails Tesla’s expansion plans in China

Customers of electric car maker Tesla (TSLA) in China are a disappointed lot this week after the company raised the prices of popular models sold there to absorb the import tariffs slapped by Beijing recently. It is widely expected that more automakers, especially exporters of electric vehicles, will follow suit in the coming days.

Tesla has decided to increase the prices of its Model S and Model X cars by 20%, in one of the first reactions from the corporate world to the trade war triggered by the import tariffs imposed by the US and its global trade partners.  The decision will result in prices going up on an average of $20,000 per unit.

China has been a growing market for the Elon Musk-led company, with sales nearly doubling in 2017 compared to the preceding year. Tesla’s sales turnover in China was about $2 billion last year, and it is estimated that the sharp increase in prices would weaken demand in the coming months. Statistics show that Tesla tops the list of foreign companies selling electric vehicles in China.

Tesla has decided to increase the prices of its Model S and Model X cars by 20%, in response to the tariff imposed by China

The recent increase in the demand for Tesla’s vehicles in China, after the company slashed the prices a couple of months ago, is likely to be reversed by the latest action. Interestingly, Tesla had managed to maintain its sales numbers even after the Chinese government implemented its initial round of tariffs on imports from the US. The company has been in talks with the Chinese authorities to set up its own production facility in Shanghai, without having to tie up with any local entity.

In the present scenario, for the company, the only viable option to escape the tariff and sustain demand is to start a manufacturing facility in China. It needs to be noted that Tesla has some ambitious plans for the Chinese market, including a production facility.

While it is yet to be known what impact the latest development would have on the company’s shares in the long term, it might leave the shareholders apprehensive about the stock’s future. Tesla closed the last trading session slightly lower but gained as much in premarket trading Monday.