March 5, 2019 / 11:42 AM / 13 days ago

UPDATE 2-Tesla hits customs roadblock in China over Model 3 imports -report

* Irregularities found in Tesla Model 3 imports in Shanghai

* Ports to step up inspections of other Tesla vehicles (Adds Xinhua report, background on the factory, analyst comments, shares)

SHANGHAI, March 5 (Reuters) - China has suspended customs clearance for Tesla Inc's Model 3 electric cars, citing various irregularities, including improper labelling of the vehicles, financial publication Caixin reported on Tuesday.

Tesla shares fell nearly 2 percent in trading before the bell, adding to a 10 percent decline since Friday as investors worried about frictions with the Chinese government.

Making inroads in China, the world's largest electric vehicle market, is crucial for the Silicon Valley carmaker as it seeks to offset softening demand in the United States and convince investors of its ability to become consistently profitable.

"Selling into China has clear hurdles and this is a reminder of the pitfalls when betting on growth in the region," Wedbush Securities analyst Daniel Ives said.

"The hope is this issue can be smoothed out quickly otherwise it becomes more of a black eye for Tesla and agita for investors."

Chief Executive Officer Elon Musk has played up the support Tesla is getting from Chinese authorities as it invests in the country's first wholly foreign-owned car plant in Shanghai, due to come online later this year.

Until then, Tesla has to import U.S.-made cars with substantial customs duties, putting it at a disadvantage against locally-made, government-subsidized electric vehicles from rivals such as Nio Inc, Byton and XPeng Motors.

Caixin said the Shanghai customs authority told Tesla in an official notification on March 1 that it should not sell or use Model 3 vehicles that had already been cleared.

The authority has also urged inspectors at all ports responsible for importing vehicles to step up inspections of other imported Tesla models and suspend their release if similar problems are uncovered, the report added.

Tesla was not immediately available for comment.

A total of 1,171 Model 3 sedans arrived at north China's Tianjin Port, after 84 such cars were imported via the port in February, China's state news agency Xinhua reported here on Tuesday.

The first shipment of Model 3 cars arrived in Shanghai on Feb. 22, and deliveries started at the end of the month, according to media here reports.

Tesla's Shanghai factory, made possible by raising funds from local banks at low interest rates, plans to start making Model 3s at the end of this year and eventually produce cars at a rate of 10,000 per week.

Tesla has cut prices in China several times in the last few months to make its cars "more affordable" and revive sales hit by Sino-U.S. trade tensions.

To cut costs and support its drive to generate profit, Tesla last week launched a $35,000 version of its Model 3 sedan and said its global sales would now be online-only. (Reporting by Yilei Sun, David Stanway in Shanghai and Sonam Rai in Bengaluru; Editing by Supantha Mukherjee and Patrick Graham)

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