Tesla rushes Model 3 shipments to China before trade war truce expires

San Francisco

AT LEAST three ships roughly the length of two football fields are slated to arrive at ports in China by the end of this month, each carrying precious cargo from Elon Musk.

Tesla Inc is loading as many Model 3 sedans as it can onto vessels destined for the People's Republic ahead of March 1, when a trade war truce between presidents Donald Trump and Xi Jinping is scheduled to expire.

Mr Musk fears the two countries could ratchet tariffs back up, which would make the chief executive officer's electric cars more expensive in China and boost costs of key components the country sends to his US assembly plant.

Other carmakers are at risk of seeing expenses rise again if the Trump-versus-Xi dispute flares back up. But Mr Musk is in perhaps the most precarious position in the industry. Global giants such as BMW AG and Daimler AG can wiggle around the tariffs to an extent by boosting production at existing China factories, but Tesla's manufacturing presence there was merely a muddy field as of last month. It won't be assembling any vehicles in China until the end of 2019 at the earliest.

"They're uniquely exposed," said Robin Zhu, an analyst at Sanford C Bernstein. Mr Musk, 47, said getting cars to China before a potential increase in tariffs was a key priority when Tesla reported a smaller-than-expected profit on Jan 30.

Higher duties would combine with already elevated transport and labour costs to make the company's vehicles much pricier than its competitors'. Plus, imported electric cars aren't eligible for local tax credits.

"Our car is just very expensive going into China," Mr Musk said on the earnings call. "The demand for Model 3 is insanely high. The inhibitor is affordability."

Mr Trump and Mr Xi agreed to a 90-day detente in December. The US said it would delay a planned tariff rate increase - to 25 per cent from 10 per cent - on almost half the goods it buys from China, worth some US$200 billion. While officials have been negotiating since then, Mr Trump has said he and Mr Xi won't meet again before March 1.

On Tuesday, Mr Trump said he's open to extending the deadline if the two sides are near an agreement. China has said its suspension of an additional 25 per cent tariff on US autos and parts will apply through the end of March. For months before the truce, China had slapped American-built cars with 40 per cent levies.

In recent days, a steady stream of trucks hauling Tesla models has arrived at the gates of Pier 80 in San Francisco, where workers can be seen unloading them into a parking lot packed with thousands of cars. The vehicles are then loaded onto ships for the roughly two-week journey to Asia.

The vessel Glovis Symphony docked at the port of Tianjin early this week and was due to arrive in Shanghai on Wednesday. Two more carriers, Morning Cindy and Emerald Ace, are at sea and scheduled to reach China's shores on Feb 19 and 24, according to data compiled by Bloomberg. Other ships being loaded at Pier 80 are headed to Europe.

The Model 3 is the linchpin of Tesla's effort to appeal to a wider global audience, with Mr Musk promising for years that a version will eventually be available for US$35,000 before incentives. That's generally in line with the average selling price of a vehicle in the US. But following through on that vow has bedevilled Mr Musk. The cheapest version available now - almost three years since he first showed a concept of the car - is US$42,900.

In Europe, where deliveries are just getting underway, prices vary by country, with customers in Belgium paying a base price of 58,800 euros (S$90,260), compared with 55,400 euros in Germany and 53,500 euros in France. In China, the Model 3 starts at 433,000 yuan (S$86,800).

Some of the best-selling electric cars in the market - the world's biggest for battery-powered vehicles - can be had for less than a sixth of that price. Beijing Electric Vehicle's EC Series and Chery Automobile's eQ are listed at 65,800 yuan after subsidies.

In 2017, California shipped US$1.37 billion worth of electric vehicles to China, according to the US Census Bureau's foreign trade statistics. Through October 2018, the figure was US$936 million. Virtually all of those cars were Teslas.

If the trade war escalates further, Tesla could shift part of its supply chain to other countries in Asia, or to Mexico where it already has several established suppliers. BLOOMBERG


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