Tesla is reportedly strongly considering implementing a second price increase on its China vehicles, an additional hike to the one that will go into effect August 30. The second price increase is in response to China's retaliatory tariffs against U.S. Auto sales into China. Those tariffs, a response to Trump's early August 10% to 25% tariff threat on Chinese goods coming into the U.S, would be a 25% tax on American automobiles. Trump punched back by increasing the rate of 25% existing tariffs to 30%.
Recently, Tesla has made profitability one of it primary focuses, and it has shown, in flashes, the ability to accomplish that objective. The higher tax on its cars going into China would pinch Tesla's gross margins in the country, and Tesla may have to accept fewer vehicle sales in order to restore profitability.
Meanwhile, it emerged as a possibility last week that Tesla's poor Model X and S sales may be a result of heightened competition in the EU. Alliance Bernstein analyst Toni Sacconaghi noted Tesla quarterly run rate of units sold has fallen from more than 20,000 to 14,000. The average selling price has dropped 10% on the models. Sacconaghi posits that Tesla is losing market share because of higher sales from Jaguar's iPace and Audi's eTron. Investors will need to monitor how Tesla responds to an EU problem that seems to threaten profitability.
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