As the trade war between China and the US heats up, Tesla might be hit especially hard.
Trade wars are bad for business. Everyone knows this, but for some reason, the current US administration thinks it’s a war that can be won. After announcing 25% tariffs on $300 billion worth of Chinese goods, China retaliated by slapping their own tariffs on $60 billion in US imports.
This is just all headlines for now, but pretty soon it will mean higher prices for regular consumers on pretty much everything because almost everything is made in China.
Nobody wants to pay more for stuff, but especially Tesla. Although cars were not specifically targeted in the new rounds of tariffs, many investors believe that it’s only a matter of time before the trade tensions between the two world superpowers hits automobiles next.
That’s bad for Tesla. According to Bloomberg, their stock dropped 6.3% on Tuesday to the lowest it’s been since January 2017.
The problem, at least for Tesla, is that they need to get selling in China. While they’re finally making Model 3s at a pace that is angling towards profitability, Tesla still has a lot of debt that won’t get better unless they make more money. China is a key strategic market for Tesla as they look to break into the red-hot Chinese EV market with a brand new Gigafactory being built in Shanghai.
Last year, Tesla announced they’d begin the process for getting their latest Gigafactory approved, with construction expected to begin in 2020. The factory will sell base-trim Model 3s and Model Ys to a Chinese middle-class that really wants to take advantage of government subsidies for electric cars.
But if this trade war continues, there’s no telling what the Chinese government will do to retaliate.
Meanwhile, the Chinese EV market is so hot that some analysts believe it’s ready to collapse. That would also be really awful for Tesla after spending so much money building a Gigafactory.