Tesla, a US car manufacturer, has a Chinese subsidiary Shanghai Tesla Super factory that manufactures and sells electric cars in China.

a. The main input is priced in USD (USD10,000/unit)

b. All other costs are in CNY (Fixed cost=CNY 500 million, Variable cost= CNY50,000/unit).

c. Depreciation = CNY 1 million

d. S0 = CNY6.5/USD

e. Expects to sell 10,000 cars this year at CNY300,000 each.

f. Tax rate=30%; assuming tax credits are available for immediate use if losses occur

Besides sales in China, Tesla Shanghai Super Factory also exports cars to Australia. For the rest of the question, assume that the additional sale to Australia is 1,000 cars and the price is AUD 60,000. The shipment cost per exported car is CNY5000. The sales revenue in Australia will be translated to the U.S. directly at the spot exchange rate. Now the exchange rate is AUD1.5/USD and CNY6.5/USD. (Note: all productions are in China but Chinese corporate tax is exempt for these exports. Please do NOT consider U.S. tax or Australian tax).

What are the operating cash flows in dollars now?

If the spot rate reduces to CNY6/USD, Tesla would like to pass all benefits to its client by reducing the selling price. What would be the new selling price that would maintain Teslas operating cash flow in USD in Part (c) and would pass all benefits to its client at the same time?