Tesla Raises Price of Model 3 in China Ahead of Tariff Jump--Update
August 30 2019 - 11:30AM
Dow Jones News
By Trefor Moss
SHANGHAI -- Tesla Inc. raised its prices in China ahead of new
Chinese tariffs on imported U.S. cars, increasing the pressure on
the California electric-vehicle maker to fast-track production at
its new Shanghai plant.
But starting and ramping up local output is just the first
challenge Tesla -- which previously missed production targets in
the U.S. -- faces in China. Selling enough EVs to turn a profit
could prove even tougher, analysts say, with China's auto industry
in the doldrums and dozens of the country's loss-making EV
companies fighting for survival.
"I don't think anybody will sell an EV profitably in the next
two to three years: start-ups or incumbents or Tesla," said Robin
Zhu, an analyst with Sanford C. Bernstein.
Tesla on Friday increased the price on its website for an
imported Model 3 to roughly $50,870 from $49,750. But China will
apply a higher tariff to U.S.-made cars in December -- it will go
back up to 40% from 15% after Beijing temporarily lowered the
tariff as a goodwill gesture ahead of trade talks. Tesla prices
have seesawed in China in the past year as the Washington-Beijing
trade fight worsened. The locally built Model 3 will avoid the
tariffs and sell significantly cheaper at $45,860 -- though that is
still expensive by market standards.
The recent devaluation of the yuan also raised pressure on Tesla
to increase prices.
Elon Musk, Tesla's chief executive, visited the Shanghai plant
-- the company's first outside the U.S. -- on Thursday, according
to photos circulated on social media by Tesla fans that purported
to show the visit. "I've never seen something built so fast," Mr.
Musk said of the factory, speaking at a conference in Shanghai
earlier that day. The plant received local-government certification
this month, signifying that work on its first phase was finished,
after construction began in January.
Tesla didn't respond to questions about the plant, which
analysts say will cost $2 billion. The company has said it is on
track to start production this year, and achieve production on a
large scale in 2020.
Tesla has brand cachet in China, where the company sold more
than 16,000 luxury imported cars last year, according to LMC
Automotive. Mr. Musk is now betting Tesla's future on expectations
Chinese consumers will buy premium EVs en masse. Tesla has said its
Shanghai plant will eventually build 500,000 cars a year, though it
is initially targeting yearly output of about 150,000 cars.
China offers the scale Tesla needs as it aims to ramp up sales
and deliver sustainable profits. More than 1.26 million EVs were
sold here last year, roughly 60% of the global total.
But while EVs are forecast to become widespread and profitable
by the mid-2020s, the near-term economics of China's EV business
have soured considerably.
Tesla and its startup rivals must soon contend with an onslaught
of new EVs from traditional auto makers, which have to start
producing EVs in China this year to satisfy a government
mandate.
Those tried-and-tested brands will likely pose the biggest
threat to Tesla's dreams of massive China sales, said Janet Lewis,
the head of industrials and transportation research in Asia at
Macquarie Group, with mainstream Chinese consumers known for
favoring established names. In their mind, it will still be "better
to buy from your local BMW, VW or Toyota dealer," Ms. Lewis
said.
That increased competition comes after seismic changes in
Chinese subsidies. After having spent billions of dollars
subsidizing EV production, Beijing this year drastically reduced
subsidies and will cancel them next year.
Shorn of handouts, the numbers no longer add up for most EV
makers, and private investors are now mostly shunning them.
NIO Inc., the bellwether for China's EV start-ups, lost $856
million in the six months ending March and has laid off a quarter
of its staff globally. Despite that, it secured a $1.4 billion
investment from a government fund in June. A company spokeswoman
said staff cuts were needed to improve efficiency and that plans
were still on track.
While other EV companies have burned through less cash than NIO,
few are nearing profitability. Shanghai-based WM Motor Technology
Co., which is backed by Baidu Inc., sold 8,536 cars in the first
half of 2019, but it needs to sell at least 70,000 a year to start
making money, Freeman Shen, its chief executive, said earlier this
month. He added it was unclear how soon that would happen. "The
market is much slower than we thought," he said.
--Shan Li in Shanghai contributed to this article.
Write to Trefor Moss at Trefor.Moss@wsj.com
(END) Dow Jones Newswires
August 30, 2019 11:15 ET (15:15 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Tesla (NASDAQ:TSLA)
Historical Stock Chart
From Aug 2024 to Sep 2024
Tesla (NASDAQ:TSLA)
Historical Stock Chart
From Sep 2023 to Sep 2024