Tesla’s Collapse In China Spells Trouble For 2H Profits
With the announcement of its 20% price hikes in China to countervail increased tariffs, Tesla vehicles have become prohibitively expensive, even for wealthy Chinese.
Tesla’s (TSLA) recent 20% price hike in China should quash any hopes of positive free-cash flow or GAAP-based net profits in Q3 and Q4. Motorhead estimates that, at nearly 40% gross margins on revenues in the region, China made up 45% of Tesla’s automotive gross profit during the 1H of 2018 if all of the pricing upside was repatriated to Tesla’s P&L (more details below).
China has been Tesla’s biggest profit center possibly because Tesla has an even higher brand value there than in any other region of the world. Before the 20% price hike was implemented–a move to offset the 25% Chinese retaliatory tariffs on imported US cars–wealthy Chinese were willing to pay 51% higher prices for the Model S 75D ($121,100 versus $80,300 in the US) and 55% higher prices for the high-end Model X P100D ($216,900 versus $140,000 in the US).
Table-1 shows just how steeply higher each Tesla model was priced in China, relative to the US, as of late June. With the announcement of its 20% price hikes in China to countervail increased tariffs, Tesla vehicles have become prohibitively expensive, even for wealthy Chinese.