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Tesla (TSLA) Raises Prices in China as Trade Spat Escalates

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Tesla, Inc. (TSLA - Free Report) has raised prices of Model X and Model S vehicles by 20% in China, per Reuters. In fact, this Palo Alto, CA-based electric vehicle (EV) manufacturer turned out to be the first automaker to increase prices in China — the largest automotive market in the world. The automaker has resorted to this move as the U.S.-China trade war started to affect auto companies.

In response to Trump’ move to levy tariffs on $34 billion worth of Chinese goods, China imposed retaliatory tariffs on U.S. car imports. China’s tariffs are likely to hurt manufacturers of industrial components in the United States as well as the automakers. For Tesla, which is incurring huge loss, China is a very important market. In fact, in 2017, the mainland accounted for 17% of its revenues. It is expected that the hike in prices is going to adversely affect sales but, Tesla can’t afford the rise in tariffs.

Importantly, the decision of price hike comes as Tesla intends to set up a factory in Shanghai to cater to the Chinese market. Some experts are of the opinion that the affluent customers of Tesla are price insensitive and are more concerned about the product experience and brand image. But, all Tesla customers may not be price-insensitive.

In the past three months, shares of Tesla have outperformed the industry it belongs to. Its stock has grown 5.9% in comparison with the industry’s decline of 4.8%.

Tesla currently has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the auto space are American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) , Magna International Inc. (MGA - Free Report) and Fox Factory Holding Corp. (FOXF - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Axle & Manufacturing has an expected long-term growth rate of 8.1%. Over the past year, shares of the company have gained 5%.

Magna has an expected long-term growth rate of 8.5%. Over the past year, shares of the company have gained 26.6%.

Fox Factory has an expected long-term growth rate of 12.5%. Shares of the company have risen 41.5% over the past year.

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