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Stung by extra tariffs, Tesla, BMW hike prices in China
Reuters | 2018/7/10

Tesla Inc. and BMW AG are raising vehicle prices in China, becoming the first carmakers to take major steps and counter punitive tariffs amid rising trade tensions between Beijing and the United States.

BMW said it will be unable to "completely absorb" a new Chinese 25 percent tariff on imported U.S.-made models and will have to raise prices on the vehicles it makes in Spartanburg, S.C.

BMW said it is "currently calculating related necessary pricing increases" for U.S.-made models exported to China and will announce them "at a later stage."

BMW exports high-margin X4, X5 and X6 SUV and crossover models to China. Last year, the automaker shipped more than 100,000 vehicles from the United States to China.

Tesla Inc. has raised prices on the Model X and S by over $20,000 in China, automotive news website Electrek reported on Monday, making it one of the first U.S. carmakers to hike prices as Beijing and Washington go head-to-head over trade.

China, which on July 1 cut tariffs on all imported automobiles from 25 percent to 15 percent, slapped an additional 25 percent levy on 545 American products, including U.S.-made light vehicles, beginning on Friday.

The move came in response to the Trump administrationí»s tariffs on $34 billion of Chinese imports.

The new duties pose a tough choice for automakers: absorb the cost of tariffs and take a hit to profits, or hike prices and possibly lose sales.

"The question for automakers is, are you able to sell your products to consumers at a higher price?" said Johan Gott, a principal at management consulting firm A.T. Kearney. "And if you can't, what are you going to take that (profit) margin out of?"

Gott said automakers are already dealing with steel and aluminum tariffs in the United States. They also face the possibility that Trump may impose tariffs of up to 25 percent on vehicles imported from the European Union and the U.S. president has threatened to pull out of the North American Free Trade Agreement.

"If you are an automaker, right now you face the potential for a great deal of disruption," Gott said.

Ford Motor Co. said for now it will not hike prices of imported Ford and higher-margin luxury Lincoln models in China.

German automaker Daimler AG said last month its 2018 pre-tax profits would fall as tariffs on light vehicles exported from the United States to China would hurt sales of high-margin Mercedes-Benz SUVs.

A spokeswoman for Daimler said the automaker is monitoring the tariff situation, but would not comment on its pricing strategy.

General Motors Co. ships the Chinese-made Buick Envision crossover to the United States, which is now subject to a tariff. Last year, GM imported 41,000 Envisions.

A GM spokeswoman said no decision has yet been made on a possible price increase for the Envision in the U.S. market.

Tesla has been banking heavily on China to boost sales and had planned to build a factory in the country.

The company in May slashed up to $14,000 off Model X prices in China after Beijing announced a major reduction in tariffs on imported automobiles.

China contributed about 17 percent to Tesla's total revenue in 2017 and the EV maker ships an estimated 15,000 cars a year to the country.

The prices of the Model S and Model X were increased over the weekend by 150,000 yuan to 250,000 yuan ($22,600 to $37,600) depending on the version, Electrek reported. Tesla did not immediately respond to a request for comment by Reuters.

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