New trade war? Tesla considers exporting China-made EVs to the US

Even as the US government is offering incentives on electric vehicles (EVs) that are manufactured in North America, Tesla - the world leader in EVs - is reportedly planning to export some of its popular models from its plant in China to the US. The Tesla plant in Shanghai was the first to be opened outside of the US in 2019 and is one of the biggest for the company, catering to not just the local market but to select European countries, Australia and south-east Asia as well.

Reuters reported on Friday night that there are possible plans of Tesla Model 3 and Model Y EVs being exported to the US from the Shanghai facility, pending a study on whether components from China-based suppliers meet local regulations here. If all works out, Tesla - a company that is headquartered in Texas - could be in a position to start exporting to the US as early as next year. Sources have told the news agency that not only would the EV units be dispatched to the US but may also eventually be shipped to Canada.

The Tesla factory in Shanghai is capable of producing as many as 1.1 million EVs each year and currently manufactures Model 3 - the most-affordable Tesla, and Model Y. But for the US customers, Tesla has been shipping its cars from its plants in California and Texas. While the plant in Fremont manufactures Model 3, Model S, Model X and Model Y, the newer Austin plant manufactures Model X and will be home to the upcoming Cybertruck.

File photo: Tesla China-made Model 3 vehicles are seen during a delivery event at factory in Shanghai.

But Tesla EVs are more affordable to buy for the Chinese in China than for Americans in the US. Take the case of Model Y which is priced at approximately $49,344 in China after currency conversion rate of $1 at 7.2511 Chinese yuan renminbi. In the US, it is priced at $65,990. Cars manufactured in China attract a 27.5% US tariff but factors such as cheaper yuan vs US dollar and lower raw material cost in China may make exporting China-made Tesla EVs to the US a viable option.

But there also is more to this than just economics and business sense. If Tesla does move forward with plans to introduce China-made EVs in the US, it could trigger a political debate. This especially because the Biden administration's Inflation Reduction Act (IRA) which incentivizes EVs made in North America is aimed squarely at bringing down dependence on China.