Tesla Feels the Burn of Tariffs, Solving the China Sales Slump Will Be Tough - TheStreet

Retaliatory tariffs on cars coming into China initially were thought to maybe hurt Telsa Inc. (TSLA) - Get Report . It's clear now that they have.

Tesla's sales in China sank 70% year over year in October, according to China Passenger Car Association, Reuters reported. Tesla said the 70% number was inaccurate, although it seems clear that a 40% tariff on U.S. autos coming into China most certainly will hurt sales materially.

Tesla didn't not immediately respond for additional comment from TheStreet.

Shares slipped as much as 2.24% Tuesday, but closed out the day down just 0.60% to $343.92 a share.

Solving the sales slump in China won't be easy for Tesla, which relied on China for 17% of its revenue in 2017.

"Other than reducing profitability, there's not much they can do," Ivan Drury, senior manager of industry analytics at Edmunds, told TheStreet. Simply put, lowering the price in China won't help Tesla drive revenue growth in China, as gross profit would suffer greatly. "If you lower the price, you're essentially looking at little, to none, to negative" profit margins, Drury said. 

The Chinese government has put regulations in place to increase the use of electric vehicles, so the EV market in China is one Tesla doesn't want to miss out on. Tesla had plans to produce cars in China, which would enable it to avoid the tariff duty, but even that may hard to pull off.

"When it comes to production and determining a plant's location, right now, you're almost better off holding off," Drury said.

The G-20 meeting takes place this weekend, and President Trump has alluded to using his old bully tactics again, which China has shown it won't tolerate. This could potentially impact Tesla's ability to set up shop in the country. On the flip side, "For production purposes, they're {China} more than fine with hosting the vehicles -- there's definitely a cache of Tesla," Drury said. 

Despite the tumble Tuesday, Tesla shares have risen 10.46% this year, as the company reported a profitable quarter on the back of notable strength in the U.S. 

This story was originally published Tuesday November 27. Tesla responded to TheStreet after publication. Here's Tesla's response:

"We don't have anything further to add beyond our statement. This is wildly inaccurate. While we do not disclose regional or monthly sales numbers, these figures are off by a significant margin."