After Elon Musk’s plan to take Donald Trump to task on US-China car trade started to look like it backfired last week as the Chinese government added electric vehicles to a new list of products that will be slapped with new tariffs, Chinese President Xi Jinping now announces a reversal of his administration’s position.
The news is making Tesla investors happy as the stock surges over 4% in pre-market trading this morning.
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A trade war started to brew between the US and China and Elon Musk and Tesla somehow got involved after Musk raised the issue of US-China automotive import and export with President Donald Trump in a series of tweets.
He informed him of Tesla’s issues with being faced with a 25% import tariff and China’s strong protectionist laws that prohibit foreign automakers to own over 50% of local manufacturing facilities.
The Trump administration released its own plan to impose tariffs on $50-billion in Chinese goods, including cars.
Two days later, the Chinese government hit back by adding electric vehicles to its own list of products that will be slapped with new tariffs.
Tesla’s stock tumbled without any real indication that the tariffs will be worse than they are right now and sure enough, the stock quickly recovered.
Now we learn that the trade discussions with China are actually going in the right direction for Tesla as Chinese President Xi Jinping announced at the Boao Forum that they plan to open up more of the Chinese economy to the world and that will include “significantly” reducing the import tariffs on cars.
Musk commented on Xi’s announcement Twitter today:
Xi also briefly touched on the subject of intellectual property and foreign investments – opening the door for the long-promised revision of the rule that forces foreign automakers to partner with local companies to establish factories in China (via CNBC):
“We encourage normal technological exchanges and cooperation between Chinese and foreign enterprises and protect the lawful [intellectual property] owned by foreign enterprises in China,”
This has apparently been a deal-breaker for Tesla’s plan to build a factory in China and in the meantime, they have been slapped with a 25% tariffs on their cars since they are limited to imports.
Despite the import tariff, the California-based automaker has been doing well in China where it doubled its sales to over $2 billion last year. They by far lead foreign electric car sales in the country.
That’s a surprising turn of events here and hopefully, it quickly turns into actions and it’s not just rhetoric on the public stage.
If the tariffs are reduced, it would allow Tesla to keep growing in China just with imports until they can reach an agreement for a local factory.
It’s not clear how it would affect other American automakers since most of them have already made joint-venture deals in China for electric vehicles over the last year in preparation for the country’s zero-emission vehicle mandate, which starts next year.
Tesla was the only automaker able to hold out since it doesn’t have a gas-powered car business to worry about and it might ultimately result in them having their own factory in the country. We will have to wait and see.
On the other hand, the US could now respond by lowering their planned tariff of 25% of Chinese cars.
It could be a good news for future EV buyers as Volvo, Nio, and other Chinese EV companies were planning to import electric cars in the US.