Tesla Raises Price of Model 3 in China Ahead of Tariff Jump--Update

Date : 08/30/2019 @ 3:30PM
Source : Dow Jones News
Stock : Tesla Inc (TSLA)
Quote : 352.17  2.82 (0.81%) @ 4:59AM
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Tesla Raises Price of Model 3 in China Ahead of Tariff Jump--Update

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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.

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