The case discusses the trouble faced by American automotive company Tesla Inc. (Tesla) in China. Tesla entered the world’s biggest auto market China, where demand for electric vehicles (EVs) was growing as the government pushed to clean up the environment. Tesla’s CEO Elon Musk had an ambitious plan to tap the growing EV market in China and accordingly he committed to start production in the country by the end of 2019. Tesla’s China chief, Tom Zhu worked on strategies to boost the brand’s appeal in the country. China also wanted to drive its dream of global dominance in EVs as it was determined to achieve the goal of 100% EVs by 2030. But the trade war between the world’s two biggest economies created potent roadblocks. Tesla was hurt by Chinese tariffs on American-made cars in retaliation to US import duty on Chinese goods. Tariffs affected Tesla’s China sales, which fell in 2018 and 2019. The automaker was forced to modify prices of its vehicles in China several times amid frequent tariff changes, exchange rate uncertainty and a broader economic slowdown in the country. As the trade war tensions geared up, investors felt concerned over the future of Tesla and it affected the automaker’s share price. The trade war reached the high point when US President Donald Trump ordered the US companies to start exploring alternative to doing business in China, while China threatened that it would re-impose tariffs on American autos in December 2019. With no possibility of ending the trade tensions in near future, it would be a tough task for Musk and Zhu to achieve Tesla’s profitability goals by increasing sales in China. What they should do to take the company forward amid mounting trade tensions.
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The case is structured to achieve the following teaching objectives:
Understand the growing electric vehicle market in China.
Evaluate Tesla’s entry and expansion in China’s electric vehicle market.
Analyze how the Sino-US trade war affects Tesla’s business in China.
Explain how Musk can materialize Tesla’s growth plan in China amid trade war tensions between its home and host country.