Despite Turbulence Tesla Aims High In China
In response to our planet's deteriorating environment, Chinese officials plan to join an international movement toward electric vehicles by banning all internal-combustion engines before 2040. Beginning late last year, Tesla published intent to build a factory in China with a manufacturing capacity of 500,000 cars, primarily focused on Model 3 production.
On February 28th, Elon Musk announced that Tesla will reduce operational costs by shifting towards exclusively online sales. Experts quickly suggested that this shift indicates weak cash flow and profitability. Days later, China customs halted 1,600 flawed Tesla car imports, which exacerbated media scrutiny. In one week, Tesla’s market capitalization contracted by more than $8 billion, and still, China officials and Tesla executives expect the Gigafactory to be completed by May of 2019.
In 2018, 140,000 Model 3s were sold, and they accounted for 55 percent of battery, electric-only cars sold in California. Additionally, 78 percent of all Model 3 orders were placed online, yet automotive sales costs at $13 billion outweighed services costs which sit below $2 billion. The Model 3 contributes the most revenue to the company with the highest margins. As a result, the company’s shift in sales strategy epitomizes Tesla’s long run goal to supply the most affordable electric car.
Tesla’s Gigafactory would bypass Chinese tariffs, reduce the prices of a Tesla vehicle in China, and increase sales volume. Although China is littered with many emerging EV brands, the country’s middle class is rapidly growing, and last year, EV sales volume reached a high of one million units. China’s PMI, consumer confidence, and consumer spending have trended upwards since the economic turmoil in late 2018, which indicates stable market growth. Tesla has received unstinting support from the Shanghai government.
Tesla is positioned to capture the growing foreign demand for clean energy products by supplying an affordable alternative to environmentally destructive carbon emissions, despite the company’s recent volatility and growing EV market competition.
Written by James Mueller, Edited by Rachel Weissman & Alexander Fleiss