US carmaker Tesla Inc has hiked prices on its Model X and S cars by about 20 percent in China, the first automaker to do so in the world’s top automotive market in response to mounting trade tensions between the countries.
The move is the earliest indication of how much higher Chinese tariffs on certain U.S. imports will flow through to buyers, with other automakers likely to follow suit or shift a greater portion of production to China.
“It’s only chapter one of this story,” said James Chao, a Shanghai-based analyst at consultancy IHS Markit, who expects more companies worldwide to be hurt by the trade spat.
China slapped retaliatory tariffs of 25 percent on imports of several U.S. products, including cars, after US President Donald Trump imposed tariffs on $34 billion worth of Chinese goods.
China’s tariffs are expected to hurt automakers, firms that make industrial components in the United States, and producers of soybean, whiskey and other agricultural items.
For Tesla especially, rapidly burning cash and struggling to turn a profit, China is key. Sales in the country accounted for about 17 percent of its revenue last year.
In May, Tesla slashed up to $14,000 off its Model X in China after Beijing said it would cut import tariffs to 15 percent from 25 percent for most vehicles from July 1.
But the latest retaliatory tariffs mean importers will have to fork out a total 40 percent duty on all US-made cars they sell in China. Tesla’s price hikes kicked in over the weekend.
Its basic Model S sedan in China now costs about 849,900 yuan ($128,779), versus 710,579 yuan in May, while a Model X sport-utility vehicle costs about 927,200 yuan, versus 775,579 yuan, according to Tesla’s website.
These prices are more than 70 percent higher than in the United States where the basic Model S sedan sells for $74,500.
“Raising the prices is going to hurt sales, but money-losing Tesla has to raise prices because they can’t afford to fully absorb the higher costs of the tariffs,” CFRA research analyst Efraim Levy said. “Considering they claim to be capacity-constrained, they should be able to shift sales elsewhere.”