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Tesla hikes prices in China as trade war hits car makers

20% increase the first indication of how higher Chinese tariffs will hit US imports

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For Tesla especially, rapidly burning cash and struggling to turn a profit, China is key. Sales in the country accounted for about 17 per cent of its revenue last year.

Beijing/Shanghai

US carmaker Tesla Inc has hiked prices on its Model X and S cars by about 20 per cent in China, becoming the first carmaker to raise prices in the world's largest automotive market in response to a US-China trade war.

The move is the first indication of how much higher Chinese tariffs on certain US imports will flow through to showroom floors, with other carmakers likely to follow suit or shift a greater portion of production to China.

"It's only chapter one of this story," said James Chao, a Shanghai-based analyst at consultancy IHS Markit, who anticipated that more companies from around the world will be affected by the trade skirmish.

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China slapped retaliatory tariffs on US car imports in response to US President Donald Trump's move to impose tariffs on US$34 billion worth of Chinese goods.

China's tariffs are expected to hurt carmakers as well as companies that make industrial components in the United States, and produce soya bean, whisky and other agricultural products.

For Tesla especially, rapidly burning cash and struggling to turn a profit, China is key. Sales in the country accounted for about 17 per cent of its revenue last year.

"Raising the prices is going to hurt sales, but money-losing Tesla has to raise prices because they can't afford to fully absorb the higher costs of the tariffs," CFRA research analyst Efraim Levy said. "Considering they claim to be capacity-constrained, they should be able to shift sales elsewhere."

In May, it slashed up to US$14,000 off its Model X in China after Beijing announced major tariff cuts for imported cars, but the new tariffs have now erased that.

A basic Model S sedan now costs about 849,900 yuan (S$173,825) up from 710,579 yuan in May, while a Model X sport-utility vehicle costs about 927,200 yuan now, versus 775,579 yuan in May, according to its website.

Tesla's price increases come as it plans to build a factory in Shanghai to serve the Chinese market. The company ships more than 15,000 cars a year to China.

Chief executive Elon Musk was expected to visit Shanghai on Tuesday, Bloomberg reported, citing people familiar with the plans. Mr Musk will also visit Beijing on Wednesday and Thursday, Bloomberg said, quoting one of the sources.

A Tesla spokeswoman did not respond to a request for comment.

Analysts were divided on how much the price increases will bother Tesla's affluent buyers.

"Tesla consumers are a unique group of rich people. They want more of a brand image and product experience, price is less of a concern for them," said Yale Zhang, head of Shanghai-based consultancy Automotive Foresight, who believes that rich Chinese consumers will keep buying Teslas despite the price hikes.

IHS Markit's Mr Chao, however, said that many wealthy buyers in China were becoming more price conscious and wanted to get a good deal.

German luxury carmaker BMW, which also makes cars in the United States to sell in China, has also flagged that it will raise prices on vehicles that it makes in Spartanburg, South Carolina. It said last Friday that it was unable to "completely absorb" the new tariffs.

Daimler AG, another German carmaker which imports US-produced cars into China, said in a statement over the weekend that it "aims to maintain a competitive position" in China.

Ford Motor Co said last Thursday that it would not hike prices on its imported cars for now, crimping its profit margins. REUTERS