Tesla has reportedly halted sales of its Model S and Model X vehicles in China, a move attributed to the escalating trade tensions between the United States and China, specifically the increase in tariffs. This decision impacts Tesla's operations in one of its most crucial markets.

The core reason behind this halt is the increased tariffs imposed by China on US-made goods in retaliation to tariffs implemented by the US under the Trump administration. According to reports, China has raised tariffs on US-made products to 125%, a significant increase from the already high 84%. The US has responded in kind, with tariffs reaching 145% on Chinese goods. These escalating tariffs have made the Model S and Model X, both manufactured in California and imported into China, commercially unviable due to the substantial increase in their prices.

The increased tariffs have raised the price of the Model S sedan to over 1.26 million yuan (US$172,260) and the Model X SUV to 1.33 million yuan. These prices position Tesla at a significant disadvantage compared to its Chinese competitors like BYD, Xpeng, Xiaomi, and Zeekr, which offer cheaper models with comparable or even superior specifications. Given the intense price competition in China's EV market, where numerous manufacturers are vying for market share, the higher tariffs effectively price Tesla's imported models out of the race.

Tesla is reportedly encouraging Chinese customers to consider the Model 3 and Model Y, which are produced locally at its Gigafactory in Shanghai. This factory has been a key asset for Tesla, allowing it to serve the Chinese market while mitigating the impact of import tariffs on those specific models. In March 2025, Tesla China's wholesale sales reached 78,828 vehicles, highlighting the importance of local production. Specifically, sales of the new Model Y reached 49,029 units. Tesla China forecasts 520,000 sales of the Model Y in 2025.

The Model S and Model X have never been the primary drivers of Tesla's sales in China. In 2024, Tesla imported only 1,553 units of the Model X and 311 units of the Model S into China. These models accounted for less than 0.5% of Tesla's total shipments, which exceeded 657,000 vehicles that year. While the impact on Tesla's overall sales volume may be limited, halting sales of these higher-end models could affect the company's profitability.

This situation also underscores the broader challenges Tesla faces amid the ongoing trade war. The company's reliance on its Shanghai Gigafactory for local production has become even more critical. However, further escalation of trade tensions could potentially impact Tesla's supply chain and regulatory environment in China, even for its locally produced vehicles.

Tesla is also reportedly exploring expansion into new markets, such as Saudi Arabia, to diversify its sales and reduce its dependence on China. This move reflects a broader trend among automakers to seek new growth opportunities in the face of increasing trade barriers and geopolitical uncertainties.