Tesla Stocks Soar After Tax Exclusion Announcement

People attend a Tesla performance driving school event at Shanghai International Circuit
People attend a Tesla performance driving school event at Shanghai International Circuit in Shanghai, China, August 22, 2019. Picture taken August 22, 2019. (Photo: REUTERS/Aly Song)

After China's automotive regulator said, it will not impose a purchase tax on several Tesla models, shares of Tesla promptly surged by over 4% last Friday.

According to China's Ministry of Industry and Information, Tesla models - the Model 3, Model S, and Model X, will all be excluded from a purchase tax, as reported by the CNBC.

Reuters just reported that Tesla increased prices in China earlier that week because the yuan was trading very low - its lowest level in over 10 years. With the exemptions on these flagship Tesla models, the company can offset the costs it incurred or still incurring because of the US-China trade war, which started around May and still ongoing up until the present.

China is an important market for Tesla, despite the rift between the US and China. "Tesla's ability to penetrate China as a market opportunity is key to its long-term growth," Wedbush analyst Daniel Ives said. It is one of its key markets abroad.

As estimated, the company earned over $2 billion in China in 2018. On the same year, it was able to sell 20,000 units of electric vehicles (EVs) in China. The Model X posted the highest sales output during that time. In addition, as a sign of how critical China is for Tesla, the company's three largest Supercharger stations in the world are in this country.

However, the US-China trade rift was really affecting how the company is gauging its future performance in this crucial market before this good news about tax excisions happened.

It can be remembered that earlier this year, Tesla stock even hits its lowest since 2017 because of the US-China tariff scare. Analysts then even said that 2019 could very well be Tesla's worst one yet. They could not be blamed since, at the time, Tesla really took quite a beating after China levied 24 percent tariffs on $60 billion worth of American imports. It went into effect on June 1.

One of the analysts, Garrett Nelson, said that Tesla's auto sales can be severely affected because of the trade war.

While the increase in tariffs announced has yet to include motor vehicle imports, the analyst was already very concerned during that time. "Fundamentally, there are heightened concerns surrounding China and that a prolonged trade dispute could have a significant negative impact on Tesla's auto sales and margins after their request for a tariff exemption was recently denied," he explained.

The current situation is a positive development, indeed.

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