Tesla to scale back its plans in China due to U.S. tariffs

U.S. electric car maker Tesla has halted plans to buy land to expand its Shanghai plant and make it a global export hub, people familiar with the matter said, due to uncertainty created by U.S.-China tensions. With 25% tariffs on imported Chinese electric vehicles imposed on top of existing levies introduced under former U.S. President Donald Trump still in place, Tesla now intends to limit the proportion of China output in its global production. Tesla had earlier considered expanding exports of its China-made entry-level Model 3 to more markets, including the U.S. Tesla currently ships China-made Model 3s to Europe, where it is building a factory in Germany. Tesla sold 25,845 China-made vehicles in China and overseas in April, down from 35,478 in March, according to the China Passenger Car Association (CPCA).

Tesla's Shanghai factory is designed to make up to 500,000 cars per year, and has the capacity to produce Model 3 and Model Y vehicles at a rate of 450,000 total units per year. In March, Tesla refrained from bidding on a plot of land across the road from the plant as it no longer aimed to boost its production capacity in China significantly, at least for now, three people said, declining to be named as the discussions were private. Tesla said its Shanghai factory was “developing as planned.” The Shanghai city government, a key supporter of Tesla's establishment of a wholly owned factory in China – the first and only foreign passenger car plant not required to form a joint venture – did not respond to a request for comment.

Tesla had never declared an intention to acquire the land, which is about half the size of the 200-acre plot housing Tesla's current facility and would enable the company to lift capacity by another 200,000 to 300,000 cars, said two of the people. Tesla's China sales are surging despite mounting regulatory pressure in the country after consumer disputes over product safety and scrutiny over how it handles data. It generated USD3 billion in revenue in China in the first three months of this year, more than tripling year-earlier sales and accounting for 30% of total revenue, the Global Times reports.

China’s auto sales rose 8.6% year-on-year to 2.25 million units in April, according to the China Association of Automobile Manufacturers (CAAM). Although the growth was slower than the 74.9% in March, auto production and sales continued to show an upward trend. In the January-April period, the country’s auto sales rose 51.8% year-on-year to 8.75 million units. China’s automobile sector posted a strong exports performance in April. Chinese car firms exported 151,000 cars in April, rising by 13.7% month-on-month and 1.1 times year-on-year, the CAAM said. About 516,000 cars were exported in the first four months of this year, up 88.1% year-on-year. During the period, exports of passenger cars rose 89.3% year-on-year to 396,000 units, while that of commercial vehicles increased by 84.3% to 120,000 units. Sales of new-energy vehicles (NEVs) in China increased by 249.2% year-on-year in the first four months to 732,000 units amid the steady recovery of market demand. In April, NEV sales surged 180% year-on-year to reach 206,000 units, the Shanghai Daily reports.