Tesla needs China. That relationship seemed on the rocks this week when Chinese media reported customs officials were holding 1,600 Model 3s for import violations and subjecting new imports to heightened scrutiny.
The General Administration of Customs (GAC) reportedly accused Tesla of omitting Chinese labeling on components and mislabeling motor capacity. The GAC suspended sales of Tesla’s Model 3s. The stock price dropped as much as 5% on the news this week. But as of today (March 5), Reuters reports that Tesla has resolved the issue, allowing sales and imports of the Model 3 to resume.
China is key to the electric automaker’s future prospects. The company is moving beyond luxury vehicles, launching its long-awaited $35,000 Model 3 last week. It’s also leaving behind enviable profit margins from its luxury Model X and Model X vehicles (priced at $76,000 and above) so it can concentrate on the mass-market Model 3, priced just below the median US price for light passenger vehicles, as well as a crossover and a pick-up truck expected to arrive in the next two years.
But that will mean producing massive volumes of cars, which is where China comes in. Tesla is building a massive new factory in Shanghai that will churn out 500,000 cars each year. Government incentives and an EV-friendly public means China already accounts for about half of the global EV market, a share Bloomberg New Energy Finance (BNEF) expects China will maintain even as the global market for EV explodes. By 2025, BNEF predicts 19% of all passenger vehicle sales in China will be electric, compared to 14% in Europe and 11% in the US.
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