What's going on?
A recent junket to China seems to have paid off for Tesla’s CEO: its electric cars, along with other international automakers’, secured an important tax exemption from Chinese authorities on Friday.
What does this mean?
Investors grew increasingly hopeful last week that the US and China would return to the negotiating table and settle their ongoing trade dispute – perhaps naively, given the number of times such hopes have previously been dashed. The most recent flare-up led China to announce it would reinstate tariffs on cars imported from the US as of December. And there were reports those taxes would force Tesla to raise its prices in the highly competitive Chinese market – the world’s biggest.
But China has now agreed to waive a separate 10% purchase tax on Tesla’s Models S, 3, and X (😏), along with electric vehicles – and the few remaining hybrids – produced by automakers like General Motors and Volkswagen. That could reduce the local cost of a Tesla by as much as $14,000.
Why should I care?
For markets: Tesla is moving to China anyway.
US tariffs imposed on China (raised as of Sunday) have damaged Tesla’s reputation in the country – as well as its sales. They’re still double last year’s (and counting), but in order to avoid the fate of companies like electronics retailer Best Buy, the company is building its first overseas production plant in Shanghai. China might not admit it, but it’ll likely be grateful for the boost to its flagging manufacturing sector.
The bigger picture: Go for gold.
Unless there’s an unexpected de-escalation, a raft of global companies will be hit by yet more tariffs going into the crucial Christmas period. They face a choice between swallowing higher costs themselves or raising their prices – and potentially risking sales. Investors pessimistic about the prospect of a stock-boosting trade deal opted to plow their cash into the “safe haven” of gold again in August – sending its value up over 8%.