Effect of Proposed Chinese Trade Tariffs on Model 3 Price?

Brokedoc

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#1
A proposed list of $200 Billion worth of additional Chinese imports was just released today. It got me thinking about the possible effect on the pricing of the Model 3 because, like all automobiles, it has an international supply chain.

***NOTICE*** Let me begin by reiterating the policy of this forum that political discussions will not be tolerated and your post will rapidly be deleted by the moderators if you start talking politics. There will be no talks about if tariffs are right or wrong or any politics whatsoever. I simply want to put the potential proposed tariffs into perspective in how they may affect us as Model 3 buyers.

Let me frame the facts:

A new list of proposed tariffs on $200 Billion worth of Chinese imports has been released.
As with the 2 previous lists, this list will be opened for a period for comment by the public and U.S. corporations for debate regarding pros/cons/modifications/etc.

The U.S. Trade Representative Robert Lighthizer will then modify the list and submit it to the President who will then implement it if he sees fit.

On this new list is a proposed 10% tariff on imported Chinese auto parts of which ALL U.S. manufactured cars have some. http://www.businessinsider.com/us-t...200-billion-what-is-included-2018-7?r=UK&IR=T

So it got me thinking. How many Chinese parts are in the Model 3?

Looking at the Monroney Sticker of a Model 3 Frist Production:

c8107958-9489-4ab7-a4a7-2b42fd031834-jpeg.11345



For Monroney Sticker calculations, the manufacturer determines percentage by value of the part and not by piece count which makes our guesstimating a little easier. https://www.nhtsa.gov/part-583-american-automobile-labeling-act-reports

U.S./Canadian is 50%
México is 25%
That leaves the rest of the parts as 25% from the rest of the world.
I recall reading in the past that the steering knuckles were made in Taiwan which is not considered China for U.S. trade purposes but China is a source for a lot of various parts so let’s just assume it’s about 15%.

15% is not really a lot. Now let’s assume the First Production price of materials is accurate as calculated by the German tear down of a Model 3 earlier this year as $18,000. https://www.teslarati.com/tesla-model-3-profit-german-teardown-company/

Therefore the assumed 15% Chinese parts content is valued at $2,700 worth of parts. Add an extra 10% and Tesla will need to pay an extra $270 per Model 3 to import those same parts to the U.S. if the proposed tariffs go into effect.

That’s not so terrible. If it stops there.

Tesla has been known to pass currency fluctuations and international tariffs onto the customer when larger changes occur but for $270 per Model 3 (a little less due to the weakening CNY:USD) I don’t think Model 3 customers will be in for any price changes yet.
 

MelindaV

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#2
I would expect the majority of the remaining 25% non North America made parts to be from Europe, so think your 15% estimate is way too high. That would be 60% of the non NA parts being Chinese. At the very most, I would guess it would be no more than 25% of the outstanding non NA, for around 6% total parts.
 

Brokedoc

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I would expect the majority of the remaining 25% non North America made parts to be from Europe, so think your 15% estimate is way too high. That would be 60% of the non NA parts being Chinese. At the very most, I would guess it would be no more than 25% of the outstanding non NA, for around 6% total parts.
After getting some sleep, I'm thinking a little clearer now and I think you're probably right that the 15% is too much.

Germany (i.e. Bosch, Brembo) would likely be 4th on the list of sources for the parts unless they do some manufacturing in the U.S.

Chinese components would likely be cheaper pieces like trim and injection molded components.

Recalculating with a 5% Chinese content, that brings us to $900 value of content and $90 tariff. That's peanuts.

On top of that, I looked at USD:CNY and we're almost at the same level as 1 year ago but in Feb 2018 before this trade thing started, USD:CNY was 6.28. As of now, it's 6.67. That's already a 6% weakening which would offset more than 1/2 of the proposed 10% tariff anyway.
 

BigBri

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#4
Maybe we can figure out the specific parts that are from China? I've heard several times Tesla sources their rims from China.
 

Ken Voss

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#7
Look.....Given the start of the Trade war every American will be paying more for most products. Remember that tax cut? Save every penny of it because we are about to see inflation that will wipe it out. This is not a political opinion, it is just an economic reality triggered by the current trade war. As far as the impact on Tesla? It will have less impact on Tesla than pretty much every other car manufacturer, see the chart below:
rank-png.11353
 

PNWmisty

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Chinese components would likely be cheaper pieces like trim and injection molded components.
All the injection molded parts I've looked closely at were molded in the USA which surprised me in a good way.

Recalculating with a 5% Chinese content, that brings us to $900 value of content and $90 tariff. That's peanuts.
You are neglecting to consider that the tariffs don't stop at auto parts. It includes things like raw materials. The Model 3 has a very high steel and aluminium content. I don't know if the aluminum is on the tariff list but steel most definitely is.

The negative effects of these tariffs could range much further and wider than a simple calculation of auto parts will show. In the extreme example, a trade war could cause a global recession and the effects of that on the price of a Model 3 would be impossible to calculate. A global recession could bankrupt Tesla and we might not even be able to buy a new one at any price.
 

Brokedoc

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#9
Look.....Given the start of the Trade war every American will be paying more for most products. Remember that tax cut? Save every penny of it because we are about to see inflation that will wipe it out. This is not a political opinion, it is just an economic reality triggered by the current trade war. As far as the impact on Tesla? It will have less impact on Tesla than pretty much every other car manufacturer, see the chart below:
View attachment 11353
I think that nobody wins in a trade war but I digress...

Your chart is very simplified and only addresses final assembly point of the vehicle which is the labor portion of the cost of vehicle production. Every car manufacturer has a global supply pipeline. Even the Model 3 that is designed in the US by an American company and assembled in the US only has 75% of it's parts made in North America.
 

Long Ranger

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#10
You are neglecting to consider that the tariffs don't stop at auto parts. It includes things like raw materials. The Model 3 has a very high steel and aluminium content. I don't know if the aluminum is on the tariff list but steel most definitely is.
Yes, aluminum is at 10% and steel is at 25%, and both of those tariffs are already in effect, not just proposed.

Another factor to consider is that tariffs generally increase the price of that item, even from domestic sources. The increased price of the imported item results in more demand from domestic sources, which tends to increase domestic prices. So you can also expect domestic steel, aluminum, and auto parts prices to rise, which will impact Tesla even if they don't import a lot of parts from China.