Tesla moves first to hike prices in China as trade war hits car makers

A boy sits in a Tesla car during a visit at Tesla showroom in Beijing on July 4, 2018. (AFP)
Updated 10 July 2018
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Tesla moves first to hike prices in China as trade war hits car makers

BEIJING/SHANGHAI: US carmaker Tesla Inc. has hiked prices on its Model X and S cars by about 20 percent in China, becoming the first automaker to raise prices in the world’s largest automotive market in response to a US-China trade war.
The move is the first indication of how much higher Chinese tariffs on certain US imports will flow through to showroom floors, with other automakers likely to follow suit or shift a greater portion of production to China.
“It’s only chapter one of this story,” said James Chao, a Shanghai-based analyst at consultancy IHS Markit, who anticipates more companies from around the world to be affected by the trade skirmish.
China slapped retaliatory tariffs on US car imports in response to US President Donald Trump’s move to impose tariffs on $34 billion worth of Chinese goods.
China’s tariffs are expected to hurt automakers as well as companies that make industrial components in the United States, and produce soybean, whisky and other agricultural produce.
For Tesla especially, rapidly burning cash and struggling to turn a profit, China is key. Sales in the country accounted for about 17 percent of its revenue last year.
“Raising the prices is going to hurt sales, but money-losing Tesla has to raise prices because they can’t afford to fully absorb the higher costs of the tariffs,” CFRA research analyst Efraim Levy said.
“Considering they claim to be capacity-constrained, they should be able to shift sales elsewhere.”
In May it slashed up to $14,000 off its Model X in China after Beijing announced major tariff cuts for imported automobiles, but the new tariffs have now erased that.
A basic Model S sedan now costs about 849,900 yuan ($128,779) up from 710,579 in May, while a Model X sport-utility vehicle costs about 927,200 yuan now, versus 775,579 yuan in May, according to its website.

NEW TESLA PLANT

Tesla’s price increases come as it plans to build a factory in Shanghai to serve the Chinese market. The company ships more than 15,000 cars a year to China.
Chief Executive Elon Musk is expected to visit Shanghai on Tuesday, Bloomberg reported, citing people familiar with the plans. Musk will also visit Beijing on Wednesday and Thursday, Bloomberg said, quoting one of the sources.
A Tesla spokeswoman did not respond to a request for comment.
Analysts were divided on how much the price increases will bother Tesla’s affluent buyers.
“Tesla consumers are a unique group of rich people. They want more of a brand image and product experience, price is less of a concern for them,” said Yale Zhang, head of Shanghai-based consultancy Automotive Foresight, who believes rich Chinese consumers will keep buying Teslas despite the price hikes.
IHS Markit’s Chao, however, said many wealthy buyers in China were becoming more price conscious and wanted to get a good deal.
German luxury automaker BMW, which also makes cars in the United States to sell in China, has also flagged that it will raise prices on vehicles it makes in Spartanburg, South Carolina. It said on Friday that it was unable to “completely absorb” the new tariffs.
Daimler AG, another German automaker which imports US-produced cars into China, said in a statement over the weekend that it “aims to maintain a competitive position” in China.
Ford Motor Co. said on Thursday it would not hike prices on its imported cars for now, crimping its profit margins.


BMW picks insider Zipse as CEO to catch up with rivals

Oliver Zipse
Updated 51 min 26 sec ago
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BMW picks insider Zipse as CEO to catch up with rivals

  • German giant has lost ground to Mercedes-Benz and Tesla as tech steps up

FRANKFURT: BMW has named Oliver Zipse as its new CEO, continuing the German carmaker’s tradition of promoting production chiefs to the top job even as the auto industry expands into new areas such as technology and services.
Hailing Zipse’s “decisive” leadership style, BMW hopes the 55-year-old can help it win back its edge in electric cars and the premium market  from rival Mercedes-Benz.
But some analysts questioned whether Zipse was the right choice with new fields such as software and services like car-sharing becoming increasingly important.
“What is intriguing is the cultural bias to appoint the head of production. It works sometimes but ... being good at building cars is not a defining edge the way it was 20 years ago,” said Jefferies analyst Philippe Houchois.
Current CEO Harald Krueger, and former chiefs Norbert Reithofer, Bernd Pischetsrieder and Joachim Milberg were all former production heads.
Zipse joined BMW as a trainee in 1991 and served as head of brand and product strategies and boss of BMW’s Oxford plant in England before joining the board.
He will become chief executive on Aug. 16, taking over from Krueger who said he would not be available for a second term.
“With Oliver Zipse, a decisive strategic and analytical leader will assume the Chair of the Board of Management of BMW. He will provide fresh momentum in shaping  the future,” said Reithofer.
Zipse helped expand BMW’s efficient production network in Hungary, China and the US, in a move that delivered industry-leading profit margins.
Under Krueger, BMW was overtaken in 2016 by Mercedes-Benz as the best-selling luxury car brand.
It also had an early lead over US  rival Tesla in electric cars, but scaled back ambitions after its i3 model failed to sell large numbers.
Reithofer initially championed Krueger’s low-key consensus-seeking leadership, but pressured him to roll out electric vehicles more aggressively, forcing Krueger to skip the Paris Motor Show in 2016 to reevaluate BMW’s electric strategy.
Krueger’s reluctance to push low-margin electric vehicles led to an exodus of talented electric vehicle experts, including Christian Senger, now Volkswagen’s (VW) board member responsible for software, and Audi’s Markus Duesmann, who is seen as a future CEO of the company.
Both were poached by VW CEO Herbert Diess, a former BMW board member responsible for research who was himself passed over for BMW’s top job in 2015.
VW has since pushed a radical 80 billion euro ($90 billion) electric car mass production strategy, and a sweeping alliance with Ford.

Other skills
“A CEO needs to have an idea for how mobility will evolve in the future. This goes far beyond optimising an existing business,” said Carsten Breitfeld, chief executive of China-based ICONIQ motors, and former BMW engineer. “He needs to build teams, attract talent, and promote a culture oriented along consumer electronics and internet dynamics.”
German manufacturers have dominated the high-performance market for decades, but analysts warn shifts towards sophisticated technology and software is opening the door to new challengers.
“Tesla has a lead of three to four years in areas like software and electronics. There is a risk that the Germans can’t catch up,” UBS analyst Patrick Hummel said.
Germany’s Auto Motor und Sport car magazine, normally quick to champion German manufacturers, this week ran a cover questioning BMW’s future.
“Production expertise is important, but if you want to avoid ending up being a hardware provider for Google or Apple, you need to have the ability to move up the food chain into data and software,” a former BMW board member said.