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Why Tesla, Inc. Stock Jumped Tuesday

By Daniel Sparks – Apr 10, 2018 at 1:15PM

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One of Tesla's most important growth markets could get a boost soon.

What happened

Shares of Tesla (TSLA -1.10%) jumped as much as 5.7% on Tuesday and are up 5.2% at the time of the writing. The stock's gain follows news that Chinese President Xi Jinping promised to "significantly lower" tariffs on imported cars -- a move that would allow Tesla to price its vehicles more competitively in the market.

"China's doors of opening up will not be closed and will only open wider," Xi said this week, according to the Associated Press. A plan to relax tariffs on imported cars would be a major boon for international automakers without factories in the country, as China has swelled to become world's largest automobile market. 

A white Model X with falcon wing doors open.

Model X. Image source: Tesla.

So what

China is a very important market for Tesla. The electric-car maker's revenue has been surging in the country, more than tripling between 2015 and 2016 and nearly doubling between 2016 and 2017. As of last year, China accounted for 17% of Tesla's total revenue -- or about a third of the company's U.S. revenue.

China will "ease restrictions on foreign ownership in the auto industry," said AP, paraphrasing Xi.

Tesla CEO Elon Musk is undoubtedly supportive of the move as he responded to a tweet from a Chinese newspaper about Xi's decision, saying, "This is a very important action by China. Avoiding a trade war will benefit all countries." 

Now what

Tesla was already planning on building a factory in China to help the company avoid import tariffs. Xi's plans could enable Tesla delay a factory in the country while simultaneously capitalizing on an opportunity to sell more cars in the massive auto market. Further, if Tesla does build a factory in the country, it may be able to avoid the current joint venture requirement.

Xi wants to implement these changes "as soon as possible."

Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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