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Tesla (TSLA) Wins 10% Tax Exemption on China's Vehicle Sales

Zacks Equity Research

It seems that Elon Musk’s charisma during his recent two-day tour to China has paid off well, as Tesla, Inc. TSLA won exemption from 10% purchase tax on vehicle sales in China. Reportedly, the tax break was announced the same day Tesla’s enigmatic leader Musk met Chinese Transport Minister Li Xiaopeng. The tax reprieve to one of America’s high-profile company comes as a pleasant surprise amid the escalating U.S.-Sino trade war tiff, wherein Beijing plans to impose 25% tariff on U.S. cars and 5% on auto parts, effective Dec 15, 2019.

The exemption is designed to benefit electric cars, primarily those manufactured in China. According to CNN Business, 34 carmakers were on the exemption list. This mainly applies to cars made by joint ventures between Chinese and foreign firms, like Daimler AG DDAIF and Toyota Motor TM. The only foreign manufacturer that was granted an exemption on its own was Tesla.

The tax break will lower the price that customers have to pay for Model 3, Model S or Model X Tesla cars. On an average, the exemption will reduce the cost of buying new Tesla car by 99,000 yuan.

Amid the tit-for-tat tariff fight between the United States and China, along with a decline in the yuan, Tesla had already lifted vehicle prices in China last Friday. 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.

While Tesla has ambitious plans to start production in China, it currently depends on California to produce vehicles for the world's largest car market. Tesla plans to start production in the country, once it completes the Gigafactory 3 plant’s construction in Shanghai. This will be Tesla’s first factory outside the United States and marks the first time China has allowed a foreign carmaker to set up a facility without a local partner.

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, 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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