Tesla, Tariffs, and Trade Wars

[Rarity]

It seems clear that Trump's assertiveness on trade is net beneficial for Tesla, even though there could be some short-term dislocation impacts.

The context is that Trump announced a 25% tariff on steel and 10% tariff on aluminum imported into the United States. Model S and Model X primarily use aluminum, while Model 3 primarily uses a steel alloy. In addition, under a different mechanism, Trump has announced a 30% tariff on solar panels, with a related allowance on solar cells. All of these tariffs seem to be the introductory hand played by Trump in an attempt to balance U.S. trade somewhat, mostly with respect to China. In other words, we should not focus too much on the details of these individual announcements.

What could Tesla gain? Tesla's exports to China, its second largest market, are taxed at 25%. If Tesla decides to manufacture in China to avoid this tariff, it must have a local partner. China also is heavily subsidizing its solar panel and battery makers, which lowers prices for non-Tesla batteries and solar panels.

Full disclosure: I am a free trader, but don't mind a brushback pitch or two, a few hit batters, and a clearing of the benches every so often.

 

[MikeC]

I’m not understanding why it seems clear that higher costs for materials are a net benefit for Tesla? And Tesla avoiding extra taxes by partnering with a Chinese company is also the case with or without the tariffs, so not sure how that’s a gain.

The only people who seem to think tariffs are a good idea is Trump and the CEOs of domestic steel and aluminum companies. Maybe some vulnerable democrats in red states.

I’ll also suggest a free trader who doesn’t mind tariffs once in a while is like an environmentalist who doesn’t mind rolling coal once in a while.

 

[TheTalkingMule]

Solar tariff would be good for TSLA in 2019 as Gigafactory 2 really starts pumping and TE reramps their solar efforts.

Imagine dropping a new streamlined residential PPA product this time next year with half the sales cost of the other majors and panels that are 50% cheaper.

* and exclusive Powerwall product integration

 

[Rarity]

I’m not understanding why it seems clear that higher costs for materials are a net benefit for Tesla? And Tesla avoiding extra taxes by partnering with a Chinese company is also the case with or without the tariffs, so not sure how that’s a gain.

To answer the substance among the rest, the net benefit hinges on two assumptions: (a) Trump's desired end-state is a market freer from tariffs and other distortions; and (b) one way of getting there is through use of tariffs to provoke a trade war or threat of a trade war.

Reagan did this with the Japanese during his presidency. Not sure how effective it was, but it was considered by some to have been very effective.

 

[Rarity]

Well now. Musk has weighed in...

Do you think the US & China should have equal & fair rules for cars? Meaning, same import duties, ownership constraints & other factors. (@elonmusk)

For example, an American car going to China pays 25% import duty, but a Chinese car coming to the US only pays 2.5%, a tenfold difference (@elonmusk)

Also, no US auto company is allowed to own even 50% of their own factory in China, but there are five 100% China-owned EV auto companies in the US (@elonmusk)

I am against import duties in general, but the current rules make things very difficult. It’s like competing in an Olympic race wearing lead shoes. (@elonmusk)

We raised this with the prior administration and nothing happened. Just want a fair outcome, ideally where tariffs/rules are equally moderate. Nothing more. Hope this does not seem unreasonable. (@elonmusk)

Twitter

 

[McRat]

...
I’ll also suggest a free trader who doesn’t mind tariffs once in a while is like an environmentalist who doesn’t mind rolling coal once in a while.

Which planet do these Free Traders live on where there are no tariffs in place?

So how do you suggest removing tariffs on American goods?

Or you think export tariffs on all American goods and services helps America?

My analogy would be the Environmentalist who makes a seven digit income from tax monies and puts up H2 stations which emit more pollution at the refinery than any other 'green' technology. See, making H2 is 'rolling coal' in it's own way, but there is literally billions of tax dollars up for grab by polluting in this manner while wearing a Free Range Polyester designer suit while driving your Bentley.

 

[Rarity]

Trump playing tag-team with Musk @ 22:25 (Video from the steel and aluminum tariff signing ceremony).

 

[Rarity]

So Trump announced tariffs on $50 billion in goods from China, China quickly countered in like manner, and tonight Trump announced that he plans to add tariffs on $50 billion additional (though the announcement wasn't specific).

Going about according to plan, given that China countered rather than deescalated.

 

[neroden]

So we're going to end up with high tariffs on both ends. This ends up hurting the US a lot more than it hurts China. I think Tesla is probably more insulated than most companies, given that they were already facing tariffs on exporting to China and are extremely vertically integrated, but the import tariffs on raw materials will hurt Tesla a little.

 

[Rarity]

So we're going to end up with high tariffs on both ends.

Yes, there is that risk, if China chooses not to negotiate, given the weakness of their position.

 

[Tam]

...Tesla is probably more insulated than most companies...

May be the erroneous assumption is because Tesla has already pay China 25% tariff, it is not affected.

But it does. China will impose additional 25% tariff in addition to an existing 25% one.

"The U.S. car maker is already hindered by China’s current 25 percent import tax that catapults the sticker prices of Model S sedans and Model X crossovers beyond the means of most consumers. An additional duty would further relegate Tesla into a niche marque only afforded by the most wealthy."

"...the 25% existing import tax on Tesla vehicles manufactured in California and exported to the gigantic and growing Chinese market will get hit with another 25%."

GM and Ford have factories in China through partnership process so they will continue to pay 0% tariff for those cars coming out from those factories.

 

[Brando]

Tesla may use little if any imported steel/aluminium from China.
Elon claimed all GigaFactory steel was US made.
Seems (quick read) about 15% of Aluminium usage in US is domestic Aluminium.

Export tax? Never heard of an export tax. Banning products, yes.

 

[RobStark]

As of now every country is exempted from the aluminum and steel tariff surtax except China, Russia and Japan.

 

[Rarity]

The first positive impact for Tesla of the Trump tariffs appears to be that China is removing local ownership/joint venture rules for electric car companies. The timing is this year.

On the other hand, a Reuters article suggests that China misjudged Trump's resolve on trade issues and is scrambling to find friends on the issue among Europeans.

I would much prefer that we don't have such miscalculations so that nobody overreacts and creates a situation that can't be walked back easily.

 

[Brando]

As of now every country is exempted from the aluminum and steel tariff surtax except China, Russia and Japan.

http://www.worldstopexports.com/us-aluminum-imports-by-supplying-country/These countries reaction could still cause problems?

https://www.trade.gov/steel/countries/pdfs/imports-us.pdf

Not much actual trade amounts, but still these countries reaction might cause problems? I don't know, above my pay scale.