Trade war sends Tesla to China
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Trade war sends Tesla to China

As the trade war between China and the U.S. has continued to heat up, electric carmaker Tesla has taken a hit: its vehicles have become shockingly more expensive in the east. That’s a big problem for the company, as China is the world’s biggest market for electric vehicles. However, CEO Elon Musk has a solution: open a factory in China, and sidestep tariffs altogether. On Tuesday, he took the first real step towards that goal, signing a deal to build in Shanghai.

graph 1207 tesla

According to a spokesperson for the company, construction will begin as soon as the approvals and permits are secured. The first vehicles will appear in around 2 years time, and it’ll take another 2 – 3 years for the plant to get up to its fully capacity (producing 500,000 vehicles annually).

There’s no pretending that this move isn’t a direct response to Mr. Trump’s trade war – but it plays in to Tesla’s wider strategy, which is to find a more efficient way to reach global markets and expand its capacity. Hence, Tesla first announced that it was in discussions about building cars in China a year ago. Other benefits to being in the country include reduced shipping costs and the possibility that sourcing components could be more economical.

Tesla’s share price has risen 4% in 5 days

graph 1207 tesla 2

SOURCE: Yahoo Finance

China is a huge growth opportunity for Tesla, as it is undoubtedly the world’s biggest market for electric vehicles. In 2018, the China Association of Automobile Manufacturers says that more than a million units may be sold. The government hopes to see 7 million electric cars sold every year by 2025.

In a statement, Tesla said: “Tesla is deeply committed to the Chinese market, and we look forward to building even more cars for our customers here.”

Disclosure

Dominion holds Tesla in its Global Trends Luxury Fund.


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