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Tesla to Benefit from China's Suspension of Tariffs on Automobiles and Car Parts from America

by Claribelle Deveza December 15, 2019

Tesla to Benefit from China's Suspension of Tariffs on Automobiles and Car Parts from America

Tesla benefits from the Chinese government's suspension on tariffs for US-made vehicles and auto parts. The tariffs were expected to take effect on December 15, 2019, but were suspended after preliminary discussions between China and the United States concerning their trade deal.  

According to CNN Business, China and the United States were able to reach an agreement on phase 1 of their trade deal two days ago, which seems to have prompted the Chinese government to suspend its impending tariffs on US-made vehicles and auto parts. China’s tariffs would have placed a 25 percent import chargeon cars made in the United States and a 5 percent charge on auto parts from the country, too, reported AP News

Tesla Gigafactory 3 production would have been directly affected by China’s tariffs on US-made vehicles and auto parts. The Shanghai factory is only concentrating on assembling the Standard Plus Model 3 at the moment, so Tesla still needs to import the Long Range AWD and Performance variants from the United States. 

Also, GF3 still needs support from Tesla’s Fremont factory in the United States for parts. According to trusted Tesla enthusiast JPR007, GF3 isn’t self-sufficient yet and hasn’t locally sourced parts for Tesla to make battery packs, motors, drivetrains, and some other components of the Model 3 Standard Plus in China. 

Based on recent footage of Gigafactory 3 from drone-operator Wuwa Vision, the Shanghai facility’s battery production building is almost complete and may start operations sometime next year. Tesla has already secured a preliminary agreement with China-based battery supplier Contemporary Amperex Co. Limited (CATL) for Model 3 production in GF3. 

CATL will probably supply battery cells to Tesla, similar to LG and Panasonic. Tesla and CATL are expected to finalize their deal by mid-2020. 

It is unknown how long the Chinese government's suspension on tariffs for US cars and auto parts will last. If the taxes do go into effect, it may be well before Tesla and CATL finalize their deal with each other.

Tesla Gigafactory 3’s current output is estimated to be 1,000 Standard Plus Model 3 units a week. The ultimate goal for GF3 is for the factory to make at least 3,000 units per week, in which case Tesla will need to supply all the parts for those cars from Fremont in the United States until it can establish relations with local vendors. 

China's tariffs on imported US vehicles and car parts could influence Tesla's gross margins in the country next year. The next-gen automaker's sales in China are a significant factor for Tesla's global presence in 2020, and these tariffs could be the difference between success and failure.  




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