Tesla falls off a Chinese cliff

Source: the CPCA; China Custom, JL Warren Capital LLC

EV-happy China is Tesla’s 2nd largest market, but we soon might have to put that in the past tense. Both exports to and sales in China of Tesla cars have fallen off a cliff in the final quarter of last year, says a report of a prominent Manhattan equity research company.

Tesla exports to and registrations in China have more than halved in the final quarter of 2018,  says a report Junheng Li just sent to her paying customers. Ms. Li is Chief Analyst at JL Warren Capital, a China-focused research house.  Last October, registrations of Tesla cars in China were down a whopping 86% to only 211 units for all of China, recovering later in the quarter to -48% in December. Exports of Tesla cars to China were down accordingly. At the same time Tesla chose to draw down its previously considerable inventory in the Middle Kingdom.

When reports of the dismal October surfaced last year, a Tesla spokesperson told CNBC that the reported 211 units were “wildly inaccurate.” Now Ms. Li, a Shanghai native with Grade A connections, reports the same 211 unit number again. As Tesla does not break out numbers by region, JL Warren uses customs data for imports. For registrations, she uses official data reported by China’s passenger car association.

Tesla was one of the first victims of President Trump’s trade war.  Last year, and in order to head off a threatened trade war,  China  dropped the import tariff on cars from 25% to 15%.  Trump nonetheless raised import duties on Chinese goods, whereupon China retaliated, slapping a punitive tariff of 25% on the 15% on American-made cars, which brought the total to over 40%. Sales of imported Tesla cars immediately plummeted. German carmakers BMW and Daimler both got hurt and benefited. As the largest exporters of Made-in-America SUVs to China, BMW and Daimler were immediately affected by the tariff action. Cars imported from Europe to China on the other hand continued to enjoy the lower 15% tariff.

Tesla cars should recover in the current quarter, now that China removed the punitive tariff as of January 1, 2019. To avoid becoming collateral damage in a trade war again, Tesla announced construction of a car factory in China. Until the new plant is finished – it likely will take longer than the 11 months, and cost more than the $500 mln communicated by Tesla – its Model 3 will have to be imported to China to what looks like lackluster demand, says Ms Li:

“Due to the lack of actual cars (even in the stores) in China, thus no test drives, no user reviews, soft economic environment, and Chinese preference for big cars, the ongoing orders for 3 is not optimistic. We estimate that Model 3 orders nationwide are in hundreds as of today.”