Tesla’s Shanghai Gigafactory may offset tariff impact sooner than expected

2 min read
Tesla’s Gigafactory 3, located in the Shanghai Lingang area, is expected to begin operation at the end of this year. (Image credit: Tesla)
Tesla’s Gigafactory 3, located in the Shanghai Lingang area, is expected to begin operation at the end of this year. (Image credit: Tesla)

The China-US trade tensions reached a boiling point over the weekend with the Chinese government planning to reinstate a 40% retaliatory tariff on automobiles imported from the US. However, Tesla’s nearly completed Gigafactory Shanghai, supported by the municipal government, may help offset any major impact to the California-based car maker’s bottom line.

Why it matters: The escalating trade war between China and the US is heightening concerns about the impact on American automakers in the world’s largest auto market.

  • Stocks tumbled Friday after China announced the new tariffs right before the US stock markets opened. Tesla’s share prices fell by nearly 5.0% by market close, while General Motors and Ford slumped 3.2% and 3.0% respectively.

Detail: Tesla is expected to export nearly 35,000 vehicles to China in 2019, according to research firm LMC Automotive. The breakneck pace of its Gigafactory 3 plant construction, which may be completed as early as end-September, may help soften the impact of the tariffs.

  • State Grid, Tesla’s construction partner, said Thursday that the construction of the factory’s substation is going well and the cabling for the substation is expected to be finished in September, according to a Chinese media report.
  • The Gigafactory reportedly could go live for trial operation by the end of September, and State Grid said it had shortened the construction period by 50%.
  • China’s Ministry of Finance announced Friday that it will resume a suspended 25% extra tariff on US-made cars and a 5% extra duty on auto parts and components beginning December 15, which would make tariffs as high as 50% for certain cars.
  • The move is part of the country’s retaliation against the US after the Trump administration announced earlier this month that it will add a 10% tariff to $300 billion worth of Chinese goods.
  • The Chinese government increased the import tariff on US-made cars from 15% to 40% for the first time in July last year, immediately after the US placed duties on $34 billion worth of Chinese products. It later paused these tariffs in late December when the two countries agreed to a ceasefire.

Tesla was not immediately available for comment when contacted by TechNode on Monday.

Context: US automakers were hit hard last year when the car sales tanked due to the previous tariffs.

  • General Motors imports plummeted 94% year on year in the third quarter of 2018 and Chrysler sank 81% while Ford imports declined 12%, according to a report from CITIC Securities.
  • Tesla imports to China during the same period fell 92% year on year. It later reported a steady 40% year-on-year increase in China sales during the first six months of 2019.
  • China is Tesla’s second-largest consumer market, making up 14% of its sales in the first half of 2019, up 42% compared with H1 2018.
  • Other automakers including Ford and BMW have factories in China, allowing them to dodge import duties for autos and parts produced domestically.