Analysts: China is the Heart and Lungs for Tesla as the Country Provides Factories and Market

published: 2020-12-25 9:11 | editor: | category: Analysis

The market initially thought what Elon Musk said two years ago about selling and delivering 500K units of vehicles was nothing but a joke, though the target is highly likely to be achieved within this year, and the shares of Tesla had surged under the bull market this year. Analysts believe that Tesla would require 2-3 years of time to achieve the sales of 500K units outside of China, and the Nikkei’s interview with market experts also disclosed that the significance of China resembles the heart and lungs of Tesla.

Tesla delivered 367.5K units last year, and almost 320K units globally by the end of September this year, before selling 113.655K units of Model 3 in the Chinese market prior to November this year, making it the best selling alternative fuel vehicle in China. Tesla has made profit for 5 consecutive quarters, and has been included in the S&P 500 Index.

The analysis of the Nikkei believes that Model 3 manufactured in Shanghai has exceeded the anticipation in terms of sales in the Chinese market primarily due to the relatively smaller impact from the COVID-19 pandemic for Asia, especially for China, where the economic rebound has been much faster over the past 3-5 months compared to other regions of the world, indicating that the demand in the Chinese market has helped Tesla in a disproportional manner.

In addition, the establishment of factories in China has drastically reduced the cost of manufacturing and logistics for Tesla. As pointed out by the coverage, Tesla has lowered the starting price of Model 3 manufactured in Shanghai for the third time this year during October, where the price is now RMB 249.9K, equaling approximately US$36,805. Despite the price reduction, the profit margin for China-made Tesla models is still 20-25% higher than other regions, which became the key in the profitability of the company.

Although the competition between local manufacturers and traditional automotive brands is only going to get more relentless in the next several years, the secretary-general of the China Passenger Car Association believes that there are no other automotive manufacturers that are on par with the overwhelming brand power of Tesla for the tech-savvy Chinese consumers.

Tesla began constructing the production line for Model Y earlier this year in Shanghai, and commented that the first SUV made in China may be delivered in 2021, though Chinese automotive experts believe that Tesla would have to lower the prices further should the company wish to expand its market shares in China, since the majority of Chinese buyers are aiming at a price range of RMB 100-150K.

According to the statistics of the China Association of Automobile Manufacturers, the sales of alternative fuel vehicles may arrive at 1.3 million units this year, which is a YoY growth of 8%, and the figure is expected to rise to 1.8 million units by 2021. Electric vehicles currently account for approximately 4.5% of the total automotive sales in China, and will surge to 10% within the next three years.

US financial service and investment firm Wedbush believes that Tesla’s share prices are expected to remain on the surging trend, and rise by another 56% under the current bull market status to US$1000 per share, which is generated by the anticipation that the sales of electric vehicles will increase significantly within the next 12-18 months, as well as the Giga 3 in Shanghai, together with the innovation in batteries from the Chinese electric vehicle supply chain. Wedbush believes that the growth of China is at least worth US$100 per share.

Dan Ives, managing director of Wedbush Securities, commented bluntly, “we won’t be talking about Tesla again today if it wasn’t for China, since the country has always been the heart and lungs of this story”.

 (Cover photo source: Tesla)

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