Tesla has recently made a significant move by halting orders for its Model S and Model X flagship electric vehicles in China. This decision appears to be a direct response to the new tariffs imposed on goods traded between the US and China. The Model S and Model X are exclusively manufactured in the US at Tesla’s Fremont factory in California and then imported into China.
The trade war initiated by President Trump has led to a 145% tariff on all Chinese goods entering the US, prompting China to retaliate with an 84% tariff on US goods, including vehicles. This substantial increase in tariffs would nearly double the cost of US vehicles, such as Tesla’s Model S and Model X, imported into China.
In light of these developments, Tesla took swift action by discontinuing online orders for the Model S and Model X in China. While this move is not expected to have a significant impact on Tesla’s overall business, as the company only delivered just over 2,000 Model S and Model X vehicles in China in 2024, it does highlight the challenges posed by the escalating trade tensions between the two countries.
Tesla continues to sell its existing inventory of Model S and Model X vehicles in China, but new orders for these models are no longer being accepted. A quick inventory check revealed that there is limited availability of new Model S vehicles and virtually no new Model X vehicles in stock.
The trade war has highlighted the importance of Tesla’s local production in China, where the company manufactures Model 3 and Model Y vehicles at Gigafactory Shanghai for the domestic market and exports. These models account for 90% of Tesla’s sales in China and are low-margin vehicles that require subsidies to drive sales.
While the loss of potential revenue from Model S and Model X sales in China is estimated at around $170 million, Tesla is more concerned about the impact of tariffs on Chinese battery cells entering the US, which support its energy products like the Megapack and Powerwall. Additionally, there is a risk of Chinese consumers turning away from American brands, which could affect Tesla’s business in the country.
If the trade war escalates further, Tesla may face challenges with its Shanghai factory, which is a rare instance of a foreign automaker owning a factory outright in China. The company will need to navigate these complex trade dynamics to ensure its continued success in the Chinese market.
