Back in May, Tesla fans rejoiced after the electric car maker slashed prices on its Model S and Model X by roughly 20%, reducing the price of its Model X in China by up to $14,000 after Beijing announced tariff cuts for imported automobiles from 25% to 15%: one of Beijing’s failed attempts to placate the Trump administration, which rang hollow for the simple reason that China imports a relatively modest amount of US-made cars.
Following the cut, the price of a top-of-the range Model X was reduced to 1.3 million yuan ($203,830), which however was still well above the $140,000 cash price-tag for the priciest version in the United States – Tesla’s Model X P100D.
However, it was not meant to last, and less than two months later, a cursory check of Tesla’s website reveals that as a result of additional new tariffs resulting from Friday’s official trade war launch, the prices of Tesla vehicles sold in the mainland have spiked right back up, with the prices of both the Model S and Model X rising by roughly 20%.
Case in point, the cash price for a baseline Model X 75D has been raised from the previous 775,600 yuan to 927,200 yuan, with similar increases across all higher model tiers. The price of this model was 825,000 yuan prior to the May tariff cut.
At the same time, a top of the line Model S P100D now costs 1,472,300, an increase of over 13% from the recently reduced price, while the cheapest version will cost 939,400, an increase of over 30% from recently discounted price 710,600, and also above the pre-discount price of 758,900 .
China has been one of Tesla’s core markets, where after a slow start it managed to double its its sales in 2017 to over $2 billion. According to Elektrek calculations, this represents over 20,000 vehicles based on their average sale price.
Sales were helped in 2017 by China’s surprising demand for Tesla’s Model X. The vehicle has been extremely popular in the country.
To support its growing fleet in China, Tesla has been significantly expanding its presence in the country, confirming in February that it has over 1,000 Superchargers and 2,000 Destination Chargers across the country. The automaker has also expanded its retail and service presence to over 35 locations in 2017.
The big question is what happens next: China has been scrambling to establish local Chinese production in order to avoid import duties, although so far those plans remain nebulous.
Meanwhile, while it is unclear just how elastic demand is for Tesla cars in China, the price hike will likely to put a dent in demand, resulting in a drop in sales and revenue. Which likely means that Elon Musk will now push hard for another major spending spree, one which gives the company the financial flexibility to build a Chinese factory avoiding tariffs altogether.
The obvious question for Tesla shareholders will be what dilution of the existing stock price will this major expansion entail, as Musk has no choice but to raise capital once more.
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Author: Tyler Durden