Daily Management Review

Tesla & Mercedes Reduces Prices In China Following Lifting Of Additional Tariffs


12/17/2018




Some US automakers are already reducing price of cars in China following the announcement by Chinese authorities of temporarily removing the 25 per cent additional tariffs that has been imposed on cars imported into the country from the US as a retaliatory action to oppose the US trade tariffs on Chinese goods. The general tariff on all foreign cars imported into China is at 15 per cent.
 
This move by the Chinese authorities was seen as a move to foster a better environment as the two countries get together to hold negotiations on trade during a 90 day truce period to the trade war as agreed between US president Donald Trump and Chinese President Xi Jinping earlier in the month.
 
The reduction of the tariff would come into effect from January 1, 2019.
 
This has prompted US car maker Tesla to quickly announce reduction of prices for its Model S and Model X cars by about $15,200 and $9,400, respectively for the Chinese market. the Model 3, which is the cheapest car model of the company, can be preordered by Chinese customers but the first cars would not get delivered until spring 2019.
 
It was just about two weeks ago that Trump had taken to Twitter to announce that that China would “reduce and remove” the tariff on cars even though he had provided no details. This Twitter announcement from Trump followed the G20 summit dinner with Xi.  
 
Following the imposition of 25 per cent additional tariffs on US cars imported into China earlier in the year. The prices of its cars were increased by Tesla in China this summer by about 150,000 yuan to 250,000 yuan or about $22,600 to $37,600. But the company again announced a partial reduction in prices in November and absorbing some of the additional costs because of the tariffs itself. This was preceded by media reports of sagging demand and sale of its cars in the Chinese market which is the largest car market of the country for conventional cars and the fastest growing market for electric cars – the ones that Tesla majorly manufactures. The US car maker had also announced this summer of the construction of its third Gigafactory in China. This means that the company plans to eventually be able to manufacture electric cars in China and thereby be able to avoid the additional burden of the import tariffs. However the new unit in China would not be able to start rolling out new vehicles until late 2019 at the earliest.
 
There has been a drop in auto sale in China across all companies and car types. According to the current trends, this year would mark the first year for the Chinese auto industry the where it would noting a drop in sale in the last almost 30 years. Some market experts have accorded this drop [partially to the ongoing trade war between the China and the US as well as a a general slowdown of China’s economy.
 
German car makers BMW and Daimler are amongst the highest importers of US made cars into China and the companies were also hard hit by the additional tariffs with BMW announcing recently that the company would lose out more than $300 million because of the retaliatory tariff.
 
On Monday, the German luxury carmaker Mercedes-Benz announced the offering of discounts on its cars that are imported into China from the United States which would run till March 31 - the day the temporary lifting of the additional tariff is set to end.  the Daimler AG-owned company said on its microblog that prices of four models were cut by between 36,000 yuan ($5,219.96) and 135,000 yuan.
 
(Source”www.theverge.com)






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