Tesla's China Ambitions — Not Tariffs — Might Hinder the Company

July 10, 2018

By Conor White

Tesla reached an agreement with the Shanghai government Tuesday to build a factory it says will be able to produce 500,000 cars per year.

That's quite a promise from a company that's so often missed its targets.

"What's going to hurt Tesla in getting up to speed in China is, as always, their ambition," said Marty Padgett, editorial director at Motor Authority.

"It's taken them a long time to get up to 200,000 a year here in the U.S., or close to it. I think the question for building over there and selling over there isn't so much the tariffs as, 'How quickly can they ramp up production of this facility they're talking about building?'"

Tesla has been trying to open a facility in China for more than a year, but President Donald Trump's trade policy has increased the urgency to set up shop. China said in May it would cut import taxes on autos from 25 percent to 15 percent, but after the U.S. imposed tariffs on $34 billion worth of Chinese goods last week, Beijing instead raised rates to 40 percent.

That kind of uncertainty does not sit well with car makers, said Padgett.

"The industry doesn't like this shift back and forth of tariff policy, because their planning periods are 18 months at least, or five years, or longer. It's going to take a long while to make the change, and when they make the change they'll be hesitant to go back."

Tesla may already be feeling some impact from the changes. Earlier this week the company raised prices on its Model S and X vehicles in China by as much as 20 percent.

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