Here’s Why A Tesla Model S Is So Expensive In China

6 months ago by Mark Kane 15

Tesla Model X in China

A few years ago, when the Model S was in its early introduction stage, Tesla hoped that demand from China will be on par with the U.S.; and as we know, that did not happen…at least not yet.

Tesla sales in China found various obstacles to overcome. One of the largest is price, at around 50% higher than in U.S. (in equivalent dollars)

Tesla in China (image credit: Evannex)

The Model S prices starts at around $103,000 compared to “just” $68,000 in home market (technically now $69,500 with the 75 kWh Tesla Model S as the base offering at a $5,000 reduced MSRP).

Beside obvious shipping costs (estimated at $3,600 per car), the biggest drawback is a 25% import duty for cars. There is also 17% VAT added on top of that.

To avoid the import tax (and obvious transit costs), Tesla would need to produce cars in China through a joint venture with Chinese partner, and basically give back intellectual property/edge over competitors and 50% of the of revenue/potential profits.

Another reason is that cars in general are taxed by an additional 10% (except for approved New Energy Vehicles – of which, Tesla is not approved). Tesla also doesn’t have access to subsidies up to nearly ~$10,000; all of which puts the company at a disadvantage competitively.

“The 10% sales tax on automobiles, for example, has been exempted for approved models of green cars since 2014, Tesla, however, was not included on that exempt list, according to official documents from Chinese State Administration of Taxation. Since the California-based company is not operating as a joint venture with local partners, it also has no access to the generous government subsidies for green cars, which can be up to 66,000 yuan ($9,576) per vehicle.

As local electric-vehicle makers effectively lower their prices with tax cuts and subsidies, Tesla’s already-high price tag becomes even less competitive.”

The only good news is that in many cities, Tesla is approved with other NEVs for quicker and registration (free license plates), which are sometimes near-impossible to acquire otherwise.

We could just imagine that by lowering the price by 50%, sales would certainly take off, although one has to note none of these factors were unknown before Tesla entered the market, so perhaps there was a little bit too much optimism by the company out of the gate.  Still, as Tesla grows, the pricing and sales hurdles in China are all well within reach of overcoming…so the potential for great sales in the future still exists.

source: Barron’s

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15 responses to "Here’s Why A Tesla Model S Is So Expensive In China"

  1. Mikey says:

    Hopefully Trump helps with this. This is a case where it makes total sense to apply exactly the same rules to any Chinese vehicles sold on this country. That would effectively block Chinese made cars from being imported. This would not be protectionist, this would be in support of actual free trade. If China wanted in on the US car market, they would need to level the playing field. Frankly, this should apply to other industries as well.

    1. Stimpacker says:

      Not so easy. We do the same crap to their tires, solar panels and whatever else a union here complains about.

      1. Mark.ca says:

        BS…
        We don’t do the same crap to anything otherwise there would be no Walmart or any of the Made in China superstores.
        Trump is right on this (it hurts me to say this), there is no fair trade with China. Between their constant currency manipulation to the import taxes american made products are in constant disadvantage while intelectual property is impossible to protect. The biggest problem here is that if a BAT is implemented that cost will likely transfer to consumers so will the American people be willing to pay more for made in America? Will the people of the rust belt actually scrape the barrel and pay more in orders to support his policies? Though sell….but i hope he does negotiate a better agreement than the existing one.

        1. SparkEV says:

          Just like free charging SUCKS, Chinese tax on superior foreign product sucks for their citizens. Another way to look at it is that their local companies have less incentive to do as well. In the long run, this will severely damage Chinese innovation, and they’ll remain as just bunch of imitators.

          There’s a reason why US dominate in innovation, despite copying by other countries. We have to constantly make better mouse traps, else US company will lose. But if Dump make it “easier” to keep status quo, we will become like China.

          As for Dump saying he’ll bring the jobs back, yeah, right. He will bring mindless sweat shop labor to US? Companies will employ robots before they pay $15/hr for menial jobs.

          You ever wonder why many on the right hate Dump? It’s because he’s just like self proclaimed Socialist Bernie Sanders: make America like North Korea.

          1. Mikey says:

            I agree that free EV charging sucks. That probably holds up our nationwide charging infrastructure.

            But let’s talk about bringing manufacturing jobs back to America. You’re saying that manufacturing jobs can’t be brought back to America because of high wages, and if we did bring them back, we would just automate them. Does that sum up your argument?

            Ok, so first of all, how does Germany do it? Their wages are higher than ours, and they have a massive manufacturing base. Secondly, Tesla does it, and they seem to be doing ok. Thirdly, wages in China are going way up, so the wage disparity has become a much smaller issue. At this point, the bigger issue (and one to really worry about) is that the manufacturing talent has largely moved to China. It’s difficult to start a factory if you can’t hire anybody who has experience with manufacturing. So I hope that helps you understand that the “high wage” argument isn’t really true.

            To your second point, that jobs will be automated, yes, they absolutely will. All jobs are more automated today than they were 20 years ago, and they were more automated then than they were 20 years before that, etc. However, what remains are still millions of manufacturing jobs, most of which are better jobs than the “sweat shop” jobs from years ago. To further my point, look at Germany again. Obviously Germany already automates as many of their jobs as possible, more so than US companies, and again they’re doing pretty darn well. Basically you’re giving a straw man argument that Trump will bring back every job the way they were in the 1950s, but nobody ever actually said that (hence, it’s a straw man argument).

            I hope this gives you something to think about. I really think that bringing manufacturing jobs back to America would be very good for us, particularly for our middle and lower-income citizens. Also, I don’t think there is anything at all socialist about demanding fair trade rules. That’s actually part of the purpose of a well functioning government.

            Thoughts?

            1. SparkEV says:

              Too long to cover all points, but I will touc on few.

              When Dump promised bringing manufacturing US, he did not mean engineers and technicians for automation. He was implying unskilled people will assemble things like iPhones while getting paid “middle class wages” like they used to. This is exactly like what Dumbocrats promise the poor to get their votes.

              If manufacturing is coming to US through market forces, which is gradually occurring, that’s perfectly fine. But government intervention (tariffs, etc) that raise prices of goods for US consumers is the wrong headed approach. If anything, Dump should pressure China and everyone else to respect intellectual property laws so that US companies continue to do what we do best: innovate. Let Chinese consumers pay outrageously high prices for superior products, because their government takes a huge cut (aka, huge corruption).

              US innovates far more so than Germany or any other country in the world. This is no surprise since the world’s smartest people come to US and set up shop. Why did Must setup shop in US when he could’ve done anywhere else?

          2. Jason says:

            In Australia we used to have several car manufacturers, now we basically have none. One of our governments had the bright idea to reduce tariffs and create this level playing field, citing the fact or protected industry made substandard products at higher cost. I’m sure there was more to it than that, but net result was all the manufacturers moved off shore because there was more no incentive for them to remain. So, yes the products had to improve, but ultimately it has resulted in the loss of many thousands jobs and our specialisation in this area, so I disagree that this pressure would result in better quality, it might result in the loss of these industries.

    2. Jason says:

      Either every non Chinese auto company has the same problems, or they manufacture in China and have no protection for their technology. Tesla is smaller player, but no different in this regard. I am pretty sure all the other manufacturers sell vehicles in China, so there must be more to it than what we know.

  2. gsleaf says:

    How is it that China can charge a 25% import duty under the WTO?

    1. Fool Cells says:

      because the WTO is nothing but a hate America club doing everything it can to destroy America.

    2. SteveSeattle says:

      Because when China joined the WTO they got a favorable deal that did not account for their total domination of the manufacturing sector. A change in terms is well overdue.
      Unfortunately the USA has to pander to China due to the craziness of their neighbor North Korea.

    3. (⌐■_■) Trollnonymous says:

      They were ategorized as an “Evolving Country” by the WTO.

      Trump can’t really do much other than vote/recommend to remove them from that label and apply First World rules to them.

    4. zzzzzzzzzz says:

      China joined WTO under these conditions as developing country. Actually these conditions are considered harsher than for other developing countries.
      https://en.wikipedia.org/wiki/China_and_the_World_Trade_Organization#Conditions

      Developed countries would have no access to 1 bln. population China market at all without this agreement. You may argue that access to this market is still restricted anyway, but companies from all over the world are running one over another to China for some reason even under these conditions.

  3. koz says:

    Anybody looking to buy a CT6 PHEV should chew on this story a little bit first.

  4. ModernMarvelFan says:

    Actually contrary to popular “American belief”, the higher the price the car is, the better it sells in “luxury segment” in China.

    Rich people in China buy expensive stuff to show off.. The more expensive it is, the better it sells among the wealthy class.

    BMW 7 series, Mercedes Benz S class sells nearly 50% of the total in China alone. So, in some twisted way, it isn’t a problem at all.

    For the Model 3 which is aimed at “middle class” then it might be an issue.