Tesla To Raise Prices In China To Overcome Tariffs And Weak Yuan

This is not investment advice. The author has no position in any of the stocks mentioned. WCCF TECH INC has a disclosure and ethics policy.

Reuters reported today that Tesla (NASDAQ:TSLA) will be hiking the price of its vehicles in China this week in a response to escalating trade tensions between the United States and China.

Last week, the public got an idea of how embattled the two nations were when U.S. President Trump made some heavily criticized, and legally questionable remarks on Twitter that involved the POTUS "ordering" U.S. companies away from China.

China’s Domestic Zhaoxin KH-4000 16 Core CPU Offers Single-Core Performance Close To AMD’s 1st Gen Zen Chips

Tesla forced to raise prices early due to trade war - desperate for new Gigafactory 3 to begin production in Shanghai

China is unofficially attempting to devalue its currency, the Renminbi against the U.S. dollar which would give it an advantage in trade, and it seems like it's succeeding - if the last few months are anything to go by. Since April the Chinese Yuan has dropped in value 5% relative to the dollar which has made importing goods into China more expensive for companies such as Tesla.

That is likely the reason Tesla is forced to raise prices, in order to protect its margins on imports into the Chinese domestic market. Tesla is desperately attempting to finish its Gigafactory 3 in Shanghai, which would see it escape the perils of both import tariffs and the risks of importing its products in a market with a weak currency.

Tesla's Gigafactory 3 in Shanghai is rapidly approaching completion.

The Gigafactory, once completed, would be able to produce as many as 500,000 vehicles a year according to company estimates. However, that plant isn't scheduled to come online until later this year, or even early next year should any delays crop up.

Tesla was fortunate that last December the Chinese removed tariffs on U.S. auto imports, but now a 25% import tax is getting slapped on the vehicles, leaving one to wonder just how many Chinese buyers will remain steadfast in their intent to purchase a Model 3 or Model S when they are suddenly more expensive. Its especially worrying for Tesla investors considering that the Chinese market is rife with competition - there are slews of electric vehicles to choose from there. The Gigafactory 3 can't come soon enough.