President Xi’s Vow on Tariffs Could Help Tesla Expand in China
Chinese President Xi Jinping’s vow to open up its economy and lower import tariffs for vehicles and other products could improve Tesla’s business prospects in a country that CEO Elon Musk believes could one day be a bigger market than the United States.
Musk tweeted his approval of Xi’s comments, which were made in the opening keynote at the Boao Forum for Asia Annual Conference 2018 in Hainan Province. “This is a very important action by China,” Musk wrote in a tweet. “Avoiding a trade war will benefit all countries.”
Xi’s repeated many of the points he made in his speech at the World Economic Forum in Davos, Switzerland last year. But with a trade war looming with the U.S., his words Tuesday were particularly notable—especially for foreign companies (and their shareholders) that would suffer under high tariffs.
Lower tariffs would greatly benefit Tesla, an automaker particularly exposed to escalating trade tensions between China and the U.S. Tesla doesn’t have a factory in China, unlike other automakers such as Ford Motor, GM, and BMW. Instead, Tesla builds its electric sedans and SUVS at its factory in Fremont, Calif. and ships them to China, which subjects the vehicles to a 25% import tariff.
And while a growing number of its Model S and Model X vehicles are sold in China, Tesla’s growth has been stifled by a combination of import tariffs and its inability to reach a deal with the government on a local factory.
Tesla was in talks for months with Shanghai’s government to build a factory there. And at one point, reports suggested a deal had been struck. But those negotiations have stalled because the two parties disagree on the ownership structure for a proposed factory, Bloomberg reported in February. Foreign companies must typically form a 50-50 joint venture with a local partner to build a factory in China. Tesla was been working on an unprecedented deal that would allow it to build a factory without a partner.
In March, Musk reached out to Trump through Twitter to lobby for the U.S. and China to reach an agreement on equal and fair rules for cars. The tweets preempted Trump’s announcement on proposed tariffs for imported steel and aluminum. China’s response to Trump—new tariffs on more than 100 U.S. products—would double the current import duty, essentially shutting down sales of Tesla vehicles there except to the extremely wealthy.