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US automaker Tesla Inc. is slashing prices of its Model S and Model X cars in China by as much as a quarter to absorb a large part of the impact of tariffs brought about by the deepening China-US trade war on customers.

The California-based firm stated on Thursday that it will reduced prices of its two flagship models by 12 to 16 percent to help make the vehicles more affordable for customers in the world’s top car market, where the demand of the so-called new-energy vehicles are growing at an incredible speed.

China’s electric car market is expected to get more prominent in the coming years due to its aggressive push towards renewable transportation.  

Apart from lowering the prices of the Model S and Model X, Tesla, which recently released pre-sales of its new Model 3 car in China, also said the car’s pricetag would start from CN¥540,000 ($77,928.83) for a dual motor all-wheel diver version and CN¥595,000 for a performance version.

The prices, while still notably higher than the Model 3’s cost in the US, presents a huge price cut from the vehicle’s original price in China nonetheless.  

Shares of Tesla rose 0.02 percent to $338.25 in after-hours trading on Thursday.

China-US Trade War Hits Automobile Sector

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Tesla’s decision comes amid intensifying trade tensions between China and the US, which has resulted to further tariffs imposed on US imports into the country, including automobiles, hitting the electric carmaker which imports all the vehicles it currently sells in the market.

Tesla has already cut prices of the Model S and Model X earlier this year due to the tariffs, but later raised them by about 20 percent in July, making Tesla at that time one of the first US auto firms to hike prices in the market as a result of the tariffs.

The latest move marks a shift from Tesla’s July decision.

Prior to the price increase in July, the firm lowered prices on its models in China in May, following the country’s announcement of its plans to reduce import tariffs for all auto imports.

The company warned in October that it was struggling to sell automobiles in China because of the new tariffs, as Tesla would have no choice but to step up investment in its first overseas Gigafactory 3 in Shanghai.

The company has pointed out in the same month that China has hit its vehicles with a 40 percent tariff, compared with 15 percent for other cars imported to the country.

In July, Tesla Chief Executive Elon Musk sealed a deal with officials in Shanghai to open the company’s first factory in China and it was able to secure the site for the production plant in October, which allowed it to avoid pricey import tariffs.

The facility is expected to produce lithium-ion batteries as well as Tesla’s Model 3 and Model Y.

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