Despite Strong Quarter, Tesla Still Worried About Chinese Tariffs


Coleman Doyle Contributor
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Tesla just recently released its third-quarter vehicle production and delivery numbers, and they look great. Tesla was able to “significantly increase” its delivery numbers to 83,500, which beat Wall Street analysts’ expectations of 80,500 and more than doubled its number from last quarter. It was also able to increase its production number for the quarter to 80,142, which is a 50 percent increase from last quarter.

Despite these increases, Tesla shares still fell 1.8 percent Tuesday.

“The production and delivery numbers were a positive surprise for sure,” CFRA analyst Garrett Nelson told CNBC. “They actually delivered into their guidance. So it seems like they have really improved operationally during the quarter, based on these results.”

Nelson also said that investors are disappointed because Tesla excluded details regarding average sale prices and vehicle costs. This is a problem to investors because there has been concern regarding Tesla’s profit margins, especially the Model 3.

Even with the strong quarter, Tesla is worried about China’s import tariffs on its cars. The ongoing trade negotiations between the U.S. and China has hindered Tesla’s competitiveness in the market, it says. China has put an import tariff of 40 percent on Tesla vehicles, a significant increase from 15 percent, which is the tariff used for other vehicles imported to China.

“Taking ocean transport costs and import tariffs into account, Tesla is now operating at a 55% to 60% cost disadvantage compared to the exact same car locally produced in China,” the company said. This is a big problem for Tesla because “China is by far the largest market for electric vehicles.”

To counteract this problem, the company has decided to speed up construction of a factory in Shanghai. Because of this, investors were hoping to see more detailed data on its manufacturing costs and cash flow. Tesla said that the factory is “roughly” two years from producing vehicles and five years from producing “around 500,000 vehicles per year.”

Elon Musk, who recently reached a settlement with the U.S. Securities and Exchange Commission over charges of fraud, has said repeatedly in the past that the company should be profitable for the third quarter. Since it went public in 2010, Tesla has had only two profitable quarters. (RELATED: Apparently Musk’s Tweet About Taking Tesla Private At $420 Was A Reference To Weed)