Confirmation: Tesla Is Subject To The Additional 25% Tariff In China

Apr. 05, 2018 9:24 AM ETTesla, Inc. (TSLA)100 Comments

Summary

  • Doubts were raised that Tesla would be affected by the new Chinese import tariffs.
  • These doubts were the result of an English translation of the original Chinese list.
  • Further digging confirmed that Tesla is indeed subject to the new, additional, tariffs.

We need to make sure, the critics wouldn't have it any other way

Initially today, Tesla (NASDAQ:TSLA) shares got dumped as it seemed Tesla cars would be hit with the new Chinese retaliatory tariffs.

This Chinese retaliatory tariff was designed to mimic the tariffs the US sought to impose on 1,300 Chinese goods. Thus, it copied both the size (~$50 billion of affected goods), the tariff percentage (an additional 25% tariff) and even the implementation date (depends on when US tariffs go live, so there’s the chance that the US can still back down).

Upon reading the actual list, however, and as can be seen in the comments to my previous article on this matter, some investors seemed to have doubts that Tesla was included. Perhaps these doubts contributed to Tesla’s massive rally off the day’s low.

It’s easy to see how the doubts might have come about. Using Google translate for the official Chinese list, you end up with something like this (as translated by CNBC using Google Translate).

If you look through that list, namely the automobile-related entries 34-60, nothing quite seems to match “Tesla”. I quickly went into a frenzy as well, trying to get hold of a Chinese national to see if, indeed, Tesla was not included.

Simultaneously, I also tried to establish under which product codes Teslas were imported. That ended up being fruitful, since the original Chinese list does include the HS Tariff Codes, as proposed by WCO (World Customs Organization), and there was knowledge about how Teslas used to be accounted for.

So here are my findings:

  • Up until January 1, 2017, Tesla vehicles were imported under the code HS 8703.90.00, “Motor Vehicles – Other”. This was used for lack of a more specific classification for EVs and hybrids. If you notice, the original Chinese list includes this code on Item 59 (red highlight is mine):

  • However, WCO proposed amendments which went into effect on January 1, 2017. The full list of changes can be found here, but we should concentrate on Chapter 87 (on page 55), where several new entries were created specifically for hybrids and EVs:

  • You will immediately notice that China used several of these new classifications in its new tariffs list. Thus, it’s clear that China is following the new WCO standards.
  • You will also notice that item 58 on China’s list corresponds to the HS 8703.80.00 product code. Alas, that code is specifically for pure EVs. That is, that code applies specifically to Tesla. (red highlight is mine)

Conclusion

There is no doubt that the new Chinese retaliatory tariffs apply to Tesla. The corresponding entry on China’s list is item 58, HS code 8703.80.00.

The tariffs are in addition to existing tariffs. Tesla vehicles were already subject to a 25% duty. If these new tariffs are implemented (which depends only on the US implementing its own new tariffs), then Tesla vehicles will be subject to a 50% import tariff. This will have an impact on Tesla's final retail prices, making them more expensive and thus lowering Tesla sales in China.

This article was written by

Paulo Santos profile picture
23.54K Followers
Author of Idea Generator
Our goal is to beat the S&P500 and to provide consistent positive returns.

I am a Portuguese independent trader, analyst and algorithmic trading expert, having worked for both sell side (brokerage) and buy side (fund management) institutions. I've been trading professionally for about 20 years.


I have a Marketplace service here on Seeking Alpha called Idea Generator that's focused on real-time actionable ideas based on valuation and catalysts. The Idea Generator portfolio has beaten the S&P 500 by more than 24% since inception (in 2015).


I also launched www.thinkfn.com in 2004. Thinkfn (Think Finance) carries thousands of educational articles on finance and markets (in Portuguese).


I trade futures, stocks from the long and short side, forex and options. I trade both discretionary and fully automated systems (Metatrader, Quantshare and others). I can be reached at paulo.santosATthinkfn.com or followed on Twitter at twitter.com/ThinkFinance999

Disclosure: I am/we are short TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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