As China Signals Retaliation, Tesla’s Musk Does About-Face on US China Tariffs

Tesla CEO Elon Musk has come out against the US-imposed tariffs on China electric vehicles (EVs) and batteries announced earlier this month. The tariff rate on China EVs will jump from 25% to 100% and the rate on China lithium-ion EV batteries will rise from from 7.5% to 25%. The tariffs are scheduled to go into effect on August 1.

In response to a question from a CNBC reporter during a Q&A session at the VivaTech conference, CNBC reports Musk said, “Neither Tesla nor I asked for these tariffs. In fact, I was surprised when they were announced.”

For them before he was against them

However, in late January Musk surprised listeners to Tesla’s Q4 2023 earnings call when he warned about the danger posed by China’s prowess in these markets—and said that rival nations would need to take protective action to rein them in.

In the Q&A portion of the earnings call, Musk was asked his thoughts on the topic of China-based OEMs expanding into Western markets. He replied, “Chinese car companies are the most competitive car companies in the world. I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established. Frankly, I think if there are not trade barriers established, they will pretty much demolish most other car companies in the world.”

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That straightforward warning showed an evolution of Musk’s thinking on China’s car companies. In 2011, he was minimizing their importance, citing the lower quality he then saw in EVs from the likes of BYD. But in Q4 2023, China’s BYD was the world’s best-selling EV company, beating out Tesla for the first time.

Now Musk’s worries of non-Chinese car companies being demolished have apparently subsided. “Tesla competes quite well in the market in China with no tariffs and no deferential support,” Musk said at the conference. “I’m in favor of no tariffs.”

Musk’s comments came a day after China's Chamber of Commerce to the European Union (CCCEU) signaled that it "could raise its temporary tariff rate on imported large-engine vehicles to a maximum of 25 percent," according to the South China Morning Post. The move is seen as a retaliation for the US tariffs and a warning to the European Union as that body contemplates its own anti-China measures.

Tesla cuts China Model Y production, breaks ground on Shanghai plant

Tesla also broke ground on a new manufacturing plant in Shanghai this week, following Musk's recent visit to China aimed at addressing declining sales. The factory, announced in April 2023, is set to begin production in early 2025 and will produce annually 10,000 Megapacks—Tesla’s large batteries designed to stabilize energy grids.

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Located near Tesla's Shanghai Gigafactory, the new plant underlines Tesla's commitment to China amid rising US-China tensions. CNN reports that the $200 million project progressed rapidly, with negotiations concluded in just a month. Shanghai officials pledged support for timely completion, and Musk's recent visit included meetings with Chinese Premier Li Qiang, who praised Tesla's success in US-China collaboration.

Meanwhile Reuters, citing industry data and an unnamed source, reports that Tesla has cut the output of its Model Y EV by a double-digit percentage at its Shanghai plant since March.

This decision is presumed to address decreasing demand for the aging model in China, Tesla's second-largest market, where most of the Shanghai-produced cars are sold. The Shanghai plant, Tesla's largest manufacturing hub globally, intended to cut Model Y production by at least 20% from March to June, according to the source. Data from the China Association of Automobile Manufacturers shows Model Y output in China was 49,498 units in March and 36,610 units in April, down 17.7% and 33% year-on-year, respectively.

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