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Tesla (TSLA) to Hike Prices in China, In Talks With LG Chem

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Reportedly, Tesla, Inc. (TSLA - Free Report) is set to lift vehicle prices in China this week itself, amid escalating U.S.-Sino trade tensions. The price raise, which was earlier scheduled for September, is likely to come into effect on Aug 30, owing to the tit-for-tat tariff fight between the United States and China, along with a decline in the yuan. 

The U.S. auto giant is reportedly mulling to hike prices again in December, if China follows through its plans to reimpose 25% tariff on U.S. cars and 5% on auto parts, which it had discontinued in April.

Tesla is one of the many U.S. carmakers including Ford (F - Free Report) , General Motors (GM - Free Report) and others that are getting affected by the intensifying trade tiff. Tesla’s CEO Elon Musk already considers U.S.-Sino trade tensions as a deterrent to American carmakers. With China being the largest market for electric vehicles, Tesla’s sales in the country may be hampered by increasing tariffs. 

Since the company currently has no local production in China, it is directly impacted by any tariff increase. Currently, all Tesla cars are manufactured in the United States and then shipped to China, resulting in an increase in logistics expenses. If the trade tiff aggravates, import tariffs could further increase. Further, Chinese currency yuan tumbled to 11-year low against the U.S. dollar on Monday, as trade tensions gripped the market. Weakening yuan will adversely impact Tesla’s earnings, on conversion to dollars.

Importantly, the company is currently constructing a plant in China as its cars are subjected to steep tariffs and sales are shrinking amid the trade war. Tesla plans to start production in the country, once it completes the construction of the Gigafactory 3 plant in Shanghai. Notably, the firm is in advanced talks with South Korea’s LG Chem Ltd. to buy batteries for the electric vehicles manufactured at the Shanghai plant, according to reports. Initially, the LG Chem batteries for Model 3 cars. The move is part of Tesla’s plans to diversify battery suppliers, as it currently sources batteries exclusively from Panasonic.

Zacks Rank and A Key Pick

Tesla, which currently carries a Zacks Rank #4 (Sell), reported wider-than-expected loss in the last quarterly release. The firm faces numerous headwinds, including high expenses and production constraints.

A better-ranked stock in the same industry is Fox Factory holding Corp (FOXF - Free Report) , which has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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