Auto Industry Leaders Join Elon Musk In Shifting Stance on China Tariffs

In a notable change of heart, several prominent figures in the automotive industry are now voicing their opposition to the protective tariffs on Chinese electric vehicles (EVs) put in place by the Biden administration. This group of executives includes Elon Musk, the CEO of Tesla (TSLA), who expressed his criticism at the VivaTech conference in Paris. This marks a departure from Musk's previous stance, where he warned of the looming threat Chinese automakers pose to the global car industry.

Joining Musk are Ferrari CEO Benedetto Vigna and Mercedes-Benz CEO Ola Källenius, both of whom have publicly advocated for a reduction in tariffs on Chinese EVs to spur healthy competition. Similarly, Stellantis CEO Carlos Tavares warned that these tariffs could have an adverse effect on both consumers and the automotive supply chain by driving up costs.

The shifting attitudes of these industry leaders are seen as influenced by their businesses' vested interests in China. For instance, Tesla operates a Gigafactory there, while Stellantis holds a stake in the Chinese EV manufacturer Leapmotor. As these corporations expand their operations and partnerships in China, their perspectives on tariffs and trade policies inevitably evolve. Tesla share prices (TSLA) have had a difficult year, as growth in local Chinese companies eat into their previous market share.

Meanwhile, China is preparing to impose retaliatory tariffs on foreign vehicles with large engines, a direct response to President Biden's trade actions. Such measures have the potential to hit automakers like General Motors (GM) and various luxury car brands hard. For those in the business of high-end vehicles, the stakes are particularly high. With around 10% of Ferrari's global production being shipped to China and nearly half of Bentley's sales occurring there, it is clear just how critical the Chinese market is to these luxury brands.

The threat of being priced out of such a lucrative market is real for manufacturers of vehicles such as Ferrari (RACE), Porsche, Bentley, Rolls-Royce, Lamborghini, and Maserati. If China's retaliatory tariffs come into effect, the cost implications could be substantial, possibly locking these high-value imported vehicles out of the Chinese market altogether.

The automotive industry is facing a complex web of trade dynamics that necessitate a delicate balancing act. While advocating for lower tariffs might appear as a sound strategy to maintain competitive edges and market access, it also reveals how integrated and reliant the global car industry has become on the Chinese market.

Whether these tariff-related overtures will result in policy changes remains to be seen, but they undeniably underscore the significant impact trade relations with China have on global auto manufacturers.