Impact of China's Tariff on Tesla's Sales: Insights on Model S and Model X Exports

Highlights:

• China halts sales of Tesla's Model S and Model X due to US tariff on imports.

• Tesla's second-largest market is affected, with possible long-term sales reductions for these models.

• Tariffs also threaten Tesla's energy storage business, which could face increased prices.

Tesla, a leading player in the electric vehicle (EV) sector, has encountered challenges in one of its largest markets, China. The country’s recent tariff on US-made imports has forced the company to halt sales of its Model S and Model X vehicles. These cars, primarily produced in the US, are now considered too expensive for Chinese consumers, as the tariffs make them prohibitively priced.

Impact on Sales in China

Tesla has seen significant sales growth in China, which is its second-largest market after the United States. However, with the imposition of tariffs on US exports, Tesla’s two high-end models, the Model S and Model X, are no longer competitive in the Chinese market. The tariffs on US-made vehicles significantly increase the cost, limiting the ability of consumers in China to purchase these models.

If the tariffs remain in place for an extended period, it could lead to a permanent reduction in Tesla's sales of these specific models in China. The halted sales of the Model S and Model X will also decrease the company's overall reach in China, directly affecting its automotive business in the region.

Consequences for Ancillary Products

A reduction in the number of vehicle sales has a direct effect on Tesla’s ability to sell complementary products and services. Tesla offers a range of products tied to its vehicles, such as autonomous vehicle software, charging solutions, and insurance services in the United States. Fewer car sales could result in reduced demand for these services and products, thus affecting the company’s bottom line.

Limited Effect on Tesla’s Overall Business

Despite the halt in sales of Model S and Model X vehicles, the overall impact on Tesla’s business is expected to be limited. It is estimated that only a small fraction of Tesla's total deliveries in recent years came from these two models exported outside the United States. This suggests that while the loss of Chinese sales is significant, it will not have a devastating effect on Tesla’s total revenue.

Tariff Impact on Tesla's Energy Storage Business

In addition to its electric vehicles, Tesla is a major player in the energy generation and storage sector. Tesla assembles its battery packs in the US, but many of the cells used in these packs are imported from China. With the new tariffs on US-China trade, the cost of these imported cells will rise, leading to higher production costs for Tesla.

These increased costs could force Tesla to raise prices on its energy storage products. If the price hikes are substantial, it could lead to a decrease in demand, especially as other energy storage solutions may become more cost-competitive. The price adjustment will likely affect Tesla’s ASX Energy Stocks division, particularly for their storage products and solutions.

Impact on Global Operations

While the tariffs create challenges in China and the energy storage sector, they do not seem to pose a major threat to Tesla's automotive operations in other parts of the world. Tesla has a global footprint, and the majority of its vehicles are produced and assembled within the US, reducing the impact of tariffs on its automotive business when compared to other automakers that are more reliant on international supply chains.

Tesla continues to explore ways to navigate these challenges by expanding production in various global locations, including new gigafactories. This will help mitigate some of the effects of trade restrictions between the US and China, although the full impact of the tariffs is yet to be determined.