Tesla (NASDAQ: TSLA) stock has fallen over 30% in the past year due to the escalation of the trade war between China and the US. The tariffs battle has taken a toll on automakers and Tesla plans to hike its car prices in China due to uncertainty related to the Chinese yuan currency.
The market fears that the automotive sector remains the worst affected due to the tariff war. Shares of General Motors (NYSE: GM), Ford Motors (NYSE: F), and Tesla were the worst hit in the past six months while Toyota Motor (NYSE: TM) remained mostly positive.
The industry is facing difficult times as global vehicle production fell by 5% in the first half of 2019 due to global economic slowdown and weak Chinese numbers.
Last Friday, China announced new tariffs on $75 billion worth of US imports. This is bad news for Tesla, which currently imports all of its cars from the US, while Ford and GM produce most cars that they sell in China locally.
Following this, President Donald Trump announced he would lift tariffs on a slew of Chinese goods starting in September. According to Bloomberg, Tesla will lift prices if China’s tariffs on cars come into effect.
Tesla expects to continue increasing Model 3 production to a sustained rate of 7,000 vehicles per week at its Tesla Factory by the end of 2019. In January 2019, the company began construction of its Shanghai Gigafactory. The company is on track to start Model 3 production at the Shanghai Gigafactory and to finalize the location for the European Gigafactory, by the year-end.
The company expects to build a production process that is optimized and simplified for Model 3 production, comprised of stamping, body joining and paint shops and general assembly, at Gigafactory Shanghai to begin production of certain trims of Model 3 for China by the end of 2019.
Tesla believes that the efficiencies of local production, as well as avoiding certain tariffs on the US-manufactured vehicles, will allow the company to offer Model 3 at a low average selling price in the largest market for electric vehicles in the world. The company’s next milestone is to be able to produce at least 500,000 units of all vehicle models combined in a continuous 12-month period ending no later than June 30, 2020.
As of June 30, 2019, Tesla had $4.95 billion of cash and cash equivalents. This enables the company to fund ongoing operations, research and development projects for new products, development of its main projects including further capacity expansion and automation for its current Model 3 production, Gigafactory Shanghai, Model Y, and Tesla Semi, and expansion of its Supercharger and vehicle service and repair networks.
It is expected that when the company start production at Gigafactory Shanghai, Tesla could turn immune from the tariff battle. And the price of the Model 3s made in China will be lower than the imported ones from the US, and the cost of producing cars in China would be cheaper too.