The Chinese market is crucial

According to a report on the Bloomberg News website on December 29, whether Tesla can defend its leading position in China will be the key to determining its longer-term growth and profit trajectory. Although China’s electric vehicle market is still in its infancy, its scale has dwarfed other countries, and China is determined to further expand this market while promising to reduce the use of fossil fuels. Tesla’s fate in China will also indicate whether it can grow into a truly global automaker, which was the high hopes investors placed in it, reflecting Tesla’s stock price being pushed up nearly 7 times higher this year.

According to reports, the three Chinese local electric car manufacturers, Weilai, Xiaopeng and Ideal, are already on the front line in competing with Tesla. All three start-ups have been listed in the United States and have received support from government entities or Internet giants. They are quickly winning a group of fans. Sales of their electric sport utility vehicles (SUVs), sedans and crossovers have increased in 2020, and their stock prices have also risen sharply, driven by Tesla.

Bill Russo, founder and CEO of Shanghai Motto Business Consulting Company, said: “Sales of Weilai, Xiaopeng and Ideal have been rising steadily since June.”

The report mentions that, according to statistics, China is Tesla’s largest market after the United States, and the company has sold more than 120,000 cars in the largest Asian economy this year. In addition, the continuous increase in the production capacity of Tesla’s Shanghai plant has prompted some analysts to predict that China will occupy a larger share of Tesla’s sales and earnings in the future.

American Wedbush Securities analyst Dan Ives said in a research briefing on December 21 that Tesla’s Model 3 sales in China have higher profit margins than the same models sold in the United States and Europe, and that by early 2022, sales in the Chinese market may account for more than 40% of Tesla’s total sales. Currently, this ratio is about 20%.

Tesla Model Y is also ready to go. According to Musk, the sales of this car may exceed all other Tesla models. This crossover is currently being produced in the Tesla factory in California, USA, and the version assembled by the Shanghai factory will also pass the final regulatory test, and will be sold in China as early as next year. Earlier this month, drone footage showed that about 40 Model Ys were driven out of the Shanghai factory, covered with protective covers.

Sharon Lee, an analyst at Warren Capital Corporation of the United States, said in a recent briefing: “In 2021, China will continue to promote Tesla’s global growth, and it will be more powerful than ever”.

According to the report, the automaker is still expanding its geographic footprint and has recently established multiple Tesla centers in cities such as Weifang and Linyi in Shandong, China. In addition to large cities, it has also strengthened its public relations team in smaller core cities such as Shijiazhuang and Haikou. Tesla will also start producing charging piles in Shanghai, which is one of its efforts to expand its charging network to more cities. The company recently completed the 500th super charging station, moving towards the goal of reaching 650 this year.

Chinese car companies are growing rapidly

The China Passenger Car Market Information Joint Conference predicts that Tesla will sell as many as 280,000 vehicles in China next year. Although this is an amazing increase compared to 2020, it will still leave more than 80% of the market share for companies to compete for. The Federation of Travel Services predicts that the total sales of new energy vehicles will reach 1.7 million in 2021.

According to the report, this means that local high-end brands such as Weilai, Xiaopeng and Ideal are becoming a growing threat to Tesla. The combined monthly sales of these three companies are close to Tesla. Automakers such as SAIC-GM-Wuling and BYD are also accelerating their development, and their electric vehicles are relatively inexpensive.

As the largest of China’s three major electric vehicle brands, Weilai’s sales of electric SUVs have been rising steadily, and their prices are as much as 40% higher than Tesla’s Model 3. The company’s retail strategy includes providing customers with clubs with showrooms, lounges, working areas, and viewing areas, and even organizing camping activities for customers’ children. Li Bin, CEO of Weilai Automobile, recently said that Tesla’s price cut earlier this year put some pressure on Weilai, but subsequent price cuts did not produce the same effect.

Li Bin said: “We have not seen any specific impact on our order volume. This proves that we have our own unique advantages”.

Consumers have more choices

The report pointed out that Xiaopeng Automobile’s sales have also seen rapid growth driven by the price lower than Tesla. The company took full advantage of the recent stock price rise and raised $2.2 billion in funding this month through additional stock offerings.

Xiaopeng Motors vice chairman Gu Hongdi said in a telephone interview on November 27: “I want to call 2020 the first year of China’s smart electric vehicle market”.

The report also pointed out that Tesla and its Chinese competitors face a common threat: Traditional automakers are rapidly turning to the field of electric vehicles. German Volkswagen plans to launch 8 ID series electric models in China by 2023, and Daimler, which produces Mercedes-Benz cars, has also launched an electric SUV project and plans to increase the number of pure electric vehicles on offer to at least ten in the next few years. Although the share of traditional auto giants in China’s electric vehicle market is still small, their advantage is that they have a huge network of dealers, services and supply chains.

At the same time, China is trying its best to attract consumers and traditional car companies away from fuel vehicles. China’s goal is to increase the market share of new energy vehicles from the current 5% to 20% by 2025.

Russo said: “Tesla has the first-mover advantage and points the way to consumers. But now there are more choices”.