Trade war between the US and China intensifies and this has adversely affected manufacturers in the two countries. Elon Musk’s Tesla Inc. being the latest victim. Tesla’s pricing for its vehicles in China have been swerving up and down throughout the year. The company initially, back in May reduced the prices of their Model X and Model S by $14,000 and $6,000 respectively. But as the US-China trade war escalated in July, Tesla was forced to increase the prices by $20,000 to keep in line with the spiralling trade tariffs. Under these tariffs, excessive import taxes were levied on American products. This caused Tesla to take a hit in the sales of their cars.

China is the world’s largest automobile market and the space for electric vehicles is burgeoning. This forced Tesla to adapt to the laws of the new regime. Hence, to stay relevant in the Chinese market Tesla has adopted a couple of steps. First, this Thursday onwards, the EV maker has slashed the prices of the Model X and Model S by 26% and 12% respectively. They have also updated the pricing for the recently-launched  Model 3 as well. It starts at 540,000 yuan ($77,928.83) for the base dual motor model and goes up to 595,000 yuan ($85,700) for the performance model.

We are absorbing a significant part of the tariff to help make our cars more affordable for customers in China,

Tesla said in a statement to Reuters.

And secondly, they have fast-tracked their project of building the Gigafactory in China. Last month, Tesla purchased a 210-acre land for $140 million to build their Gigafactory 3 in Shanghai. Tesla expects to complete the construction of the factory within a few years and begin manufacturing cars locally.

Taking ocean transport costs and import tariffs into account, Tesla is now operating at a 55% to 60% cost disadvantage compared to the exact same car locally produced in China.

said a spokesperson for the company

And Tesla wants to close in on these exact disadvantages by making cars locally in China.

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