The U.S. trade war with China has dominated Wall Street headlines in 2018, and two of the largest U.S. auto companies, Ford Motor Company F and Tesla Inc TSLA are caught in the crosshairs.
China provides a massive long-term growth opportunity for both Ford and Tesla, but it can be an extremely difficult market to tap, especially in the middle of a trade war.
Tesla’s China Approach
Tesla said in its Q3 earnings report the company plans to respond to the trade war and the new 40 percent Chinese tariff on imported American cars by moving “portions of Model 3 production to China during 2019.” The news comes on the heels of an announcement earlier this year that the Shanghai government approved the construction of a wholly owned Tesla factory in the region. Tesla also said last week it has purchased 210 acres of land to build a third Gigafactory in China.
Tesla said the Chinese tariffs will take a $50 million bite out of the company’s gross profits in Q4.
Ford’s China Woes
Ford also addressed China after reporting a $378 million loss in its China business in the third quarter. China sales declined 43 percent in September, and Ford also lost market share in the third quarter as well. The disappointing quarter came after Ford announced earlier this week it plans to separate its China business into its own unit called Ford China starting Nov. 1.
Ford CFO Bob Shanks said tariffs have cost Ford about $1 billion in profits so far in 2018 and will likely add another $200 million in future costs.
Following their respective Q3 earnings beats, both stocks were up about 7 percent Thursday at time of publication.
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