China, critical to global automakers as world's largest car market, is expected to ease tariffs on auto imports. On Tuesday, the market posted a broad recovery as remarks from Chinese president Xi Jinping eased investor worries regarding rising trade tensions between China and the U.S. The Chinese leader vowed to open up the country's economy and reduce tariffs on foreign auto imports, where they currently face a 25% levy. The decision should benefit Western automakers with major domestic manufacturing businesses, notably Tesla Inc. (TSLA), more so than rivals like General Motor Co. (GM) and Ford Motor Co. (F). (See also: Why the Bulls Still Believe in Tesla.)
Palo Alto, California-based Tesla has been viewed as particularly exposed to escalating trade tensions between the two economic powerhouses as Elon Musk's electric vehicle (EV) pioneer does not yet have a factory in China. Unlike its peers, which rely heavily on overseas manufacturing, the Silicon Valley company builds its cars at its factory in Fremont, California, and ships them abroad to consumers in China.
Musk has indicated that China could one day eclipse the U.S. as Tesla's largest market. Despite an increase in demand for the company's Model S and Model X vehicles in the Asian country, Tesla's growth has been thwarted by import tariffs and an inability to reach an agreement with the government on a local factory.
Musk: 'Avoiding a Trade War Would Benefit All Countries'
While China typically requires that U.S. firms form a 50/50 joint venture with a local partner to build a factory in China, Tesla is working on an unprecedented deal that would allow it to build a factory without a domestic partner. General Motors and its local joint ventures sold more than 4 million cars in China in 2017.
The serial entrepreneur and angel investor took to Twitter following Xi's comments at the Boao Forum for Asia Annual Conference 2018 in Hainan province, applauding the leader in taking a "very important action" and suggesting that "avoiding a trade war will benefit all countries."
Trading up abut 0.2% at $305.44 on Wednesday morning, TSLA reflects a 1.9% decline year-to-date (YTD) and a 22% fall from its 52-week high, reflecting investors' concerns regarding the company's ability to ramp up production of its first mass-market vehicle as it burns through billions in cash. (See also: US Infrastructure Bill May Spark GM Outperfomance.)