Tesla has recently stopped accepting new orders in China for its Model S and Model X vehicles that are imported from the United States. This decision, which impacts a relatively small portion of Tesla's overall sales in China, comes amid escalating trade tensions between the U.S. and China, with both countries imposing higher tariffs on each other's goods.
Specifically, the move involves suspending new orders for these models through Tesla's Chinese website and its WeChat mini program account. The Model S and Model X are manufactured in the U.S. and then exported to China. This change means Chinese customers can only purchase these models from existing inventory in Tesla showrooms.
The primary reason for this halt is the significant increase in tariffs. Following the U.S. imposing a 145% duty on Chinese imports, China retaliated by raising tariffs on U.S. products to as high as 125%. These tariffs substantially increase the retail cost of U.S.-made vehicles for Chinese consumers, making them considerably more expensive than locally produced electric vehicles. Zhao Zhen, a sales director at Shanghai-based dealer Wan Zhuo Auto, noted that Chinese buyers are unlikely to pay more than double the price for a Model S or Model X, even if they are interested in these luxury models.
Tesla produces Model 3 and Model Y vehicles at its Shanghai Gigafactory for the local market and for export to Europe. These locally produced models constitute the bulk of Tesla's sales in China, and are not subject to the same import tariffs as the Model S and Model X. In 2024, China imported only 311 units of Model S and 1,553 units of Model X, representing less than 0.5% of Tesla's total deliveries in China, which exceeded 657,000 vehicles.
Despite the limited impact on overall sales volume, the decision reflects the broader challenges facing automakers amid the U.S.-China trade war. Automakers that rely on global supply chains are facing increased production and retail costs, particularly in key markets like China. While Tesla's Shanghai Gigafactory provides some insulation, the company is still exposed to the effects of rising tariffs on imported models and components.
Industry analysts suggest that the halt in orders for U.S.-made Tesla models in China is one of the initial casualties in the escalating trade dispute. Although the direct financial impact on Tesla is relatively small, the situation highlights the potential for further disruptions in the automotive sector as trade tensions persist. There are concerns that the trade war could escalate, potentially affecting Tesla's Shanghai factory and its broader operations in China. Moreover, the rising tariffs on Chinese battery cells entering the U.S. could impact Tesla's Megapack and Powerwall energy businesses.
In response to these challenges, Tesla is reportedly exploring new markets, including Saudi Arabia, to diversify its sales and reduce its dependence on China. The company has already entered the United Arab Emirates market. This strategic shift aims to mitigate the risks associated with the trade war and maintain Tesla's growth trajectory in the face of global economic uncertainty.
