China's electric
car market is
skyrocketing and
Tesla needs the
world's largest auto
market in order to succeed.
China produced half
of global electric
vehicles last year.
The United States
produced about 20%. China's clearly
way out in front
of the United States
in terms of
size and production scale.
Analysts are expecting
that in around
five years, EV's
and hybrids will
represent about 20% of the
overall vehicle
market around the
world. Just the
size of the Chinese
market is so
appealing to anyone that makes cars.
China is one
of the biggest proponents
of electric vehicles.
In 2017, China
sold 777,000 new energy vehicles, a 53 % increase over 2016. And China is
expected to reach 2,000,000 EV's by 2020.
Since 2012 , there's been more than $60 billion in direct subsidies to lower
the cost of
electric vehicles for
Chinese consumers. So
by the time an
electric vehicle lands
in a Chinese
driveway, it may
cost as little as $10,000 to $12,000.
But Tesla has
faced one big
disadvantage. In China,
which is the
biggest market for
EV's we have never
had any subsidies
or tax incentives for
vehicles. Trade tensions
that led to
high taxes for
U.S. autos imported to
China have hurt
Tesla's bottom line. An
$80,000 Model S
in the United States
runs about $140,000
in China after
taxes. To succeed
in the region Tesla
has no choice but to make its cars there. Once they can start
manufacturing domestically
in China,
they can evade some
of the costs of those tariffs.
They'll have a
local supply chain setup.
It will just alleviate
so much pain for them.
This is why Tesla
broke ground on a new
factory in Shanghai
this year and Elon
Musk is rushing
to start production.
We need to
bring the Shanghai factory
online. Our car
is just very expensive
going into China
for import duties, we
got transport costs,
we've got higher
cost of labor here
and we've never been
eligible for any of
the EV tax credits.
Once the cars made
there it is eligible
for that. The
new Gigafactory is also
what will allow
Tesla to offer the
Model 3 at
an affordable price.
Bottom line is
we need the Shanghai
factory to achieve
that 10k rate and
have the cars
be affordable. The
inhibitor is affordability.
If we made
it more affordable, the demand
is extraordinary. Allowing
foreign automakers to
come in and own
their own
factory and operate
domestically in China
was huge for
Tesla. China's going
to be a massive
theme for Tesla in
2019. So much of
their future business
hinges on how
well they do in
China. How quickly they
get that factory
up and running.
The Chinese government
has helped Tesla
tremendously by giving
them a special
dispensation so that
they can be an
independent foreign
auto manufacturer
in China without
needing a local partner.
Tesla's not required
to have a joint
venture partner, it
can own 100%
of its operation
here. That's a real
nice break in
timing for Tesla. It'll
allow them to
control their operations
in China, which
no other global
automaker has been able
to do so far.
Just because Tesla
is opening a factory
in China isn't a
guarantee that it will be a success.
Tesla has to sell
these products at a
profit. They still
have to get the
consumer to fork over
a huge amount of
money for their product.
But perhaps the
biggest challenge Tesla
faces in China
is steep competition
from established
players. Companies
making EV's in China
they range from
really large players
like BYD, which
is backed by Warren
Buffett and BAIC,
which is backed by
the Chinese
government there. Porsche
has the Taycan, Jaguar
has I -PACE, to
new players like NIO.
Tesla's got a lot
of competition
locally in China.
NIO is basically
the pioneer. We're the
first with a
premium electric vehicle
in China and
the only other company
with a premium
electrical SUV in China
is Tesla with Model
X. Ours comes in
less than half the
price. So we think
we compete very
well and is customized
for the  modern Chinese family.
It's a variety
of long established
brands like
General Motors, Volkswagen.
Ford is participating
in this as well
but they have
oftentimes paired up with
other Chinese based
companies like BYD,
Geely, SAIC. Unlike
the U.S., China's
EV manufacturers
have focused on
creating short range,
low cost and low speed electric vehicles.
With most coming
in under $20,000. I
think their biggest risk
will be to a
certain extent companies
like NIO that
have a lot of
cash and have invested a
lot in the design
of their cars and
have some kind
of interesting things
maybe that are
the next level.
Aside from
the larger automakers
numerous startups are
also entering the
space. According to
our own database,
there are at
least 50 Chinese startups
in the electric
vehicle spaces that's
phenomenal when you
think about it.
Some of
Tesla's biggest competition
however, could come
from other foreign
luxury brands also
entering the Chinese
market. Automakers
like Porsche, Audi
and Mercedes are
all releasing EV's in
2019 that will
compete directly with Tesla.
A company like
Mercedes has been in
China for a long
time. They've got a
network to sell
cars so they've got
this head start,
especially on the
network part of
it right. They've
already got their
factories running and
then here comes
Audi, here comes
Mercedes, here comes
BMW with battery
electrics sort of for
the first time. I
think there's no way
they can't go to China.
You can't ignore a
market of that size
especially if you're
a luxury brand.
But even in
a crowded market, Tesla
could still be
a formidable player in China.
One thing Tesla has
going for it in
China is the
appeal of this Western
brand. They're an
early mover in EVs.
They really made EVs
into a luxury thing
instead of these
little short hop kind
of golf carts. And
the appeal of Elon
Musk is there
too. He's a wild character.
He's an
outspoken, unconventional CEO
and people are really committed to the company's mission.
You know they believe
in it. The good
news for Tesla is
that China is home to
the largest luxury
car market in the world by far.
And Chinese buy
twice as many luxury
cars as Americans
do. More than two
million last year.
So there's no
question the potential
is there. It'll
come down to
execution. Can they get
that plant in
order and running quickly
and make sure the
quality is there? The
Chinese will be
forgiving on price but
not on quality.
If there's any quality
issues, they
can be punishing.
