Electric carmaker Tesla will reportedly increase prices in China this week in anticipation of rising tariffs — but one automobile expert says the higher costs will not likely last.
That’s because the company will localize its production to avoid the impact of additional duties, brought on by the escalating trade dispute between the U.S. and China, said Bill Russo, founder and CEO of private equity firm Automobility Limited.
“As companies are bringing new products to market, they’re going to start with probably imported content, as well as plan for localizations,” he told CNBC’s “Squawk Box” on Tuesday. “Imports are subjected to the tariff.”
The U.S. and China have been locked in a trade battle for more than a year, with both sides slapping additional tariffs on each other’s goods. U.S. automobiles and auto parts will be subjected to a 25% tariff from Dec. 15 this year, China announced on Friday.
“The challenge is: You need to bring the products in and make money. So I think, yes, a step up in price is probably likely,” said Russo.
However, he added: “As they begin to localize their products in China, I expect those prices to come down.”
Sourcing and manufacturing within the country will be “essential” for automotive companies because of stiff competition, he said.
“Companies like Tesla have to bring a competitive portfolio to the market, and doing that with localized supply chains, localized manufacturing is critical if you want to stay competitive.”
“What I would say is: If you’re a car company with ambition to be relevant in China, it’s going to be increasingly necessary do that, as Chinese brands improve their capabilities,” Russo added.
China is the largest vehicle market in the world. Car sales in the country fell 4.3% in July, posting 13 consecutive months of declines.
Russo said Volkswagen and Toyota — brands that he calls “very China-centric” and localized — have been winners in the face of a declining sales market.
“You need to learn how to be like them if you’re going to be successful in this market going forward,” he said.
— Reuters and CNBC’s Evelyn Cheng contributed to this report.
