PALO ALTO, US / SHANGHAI / HONG KONG – Tesla marks a major milestone on Monday when the electric vehicle maker enters the S&P 500 Index, marking its entry into the heavyweight stock market .
Tesla shares have surpassed more than 600% by 2020, and the company is on track to deliver 500,000 cars this year, a goal it has been targeting for years.
Even in normal circumstances, not to mention a global pandemic, these would be commendable achievements. But 2020 might have been very different for the American automaker if it weren’t for one country: China.
“We wouldn’t be talking about Tesla today in this light if it weren’t for China,” said Dan Ives, managing director at Wedbush Securities. “China has been the heart and lungs in the story.”
First, 2020 didn’t look promising for Tesla. The COVID-19 revolution forced the closure of its Shanghai Gigafactory plant in the spring, and its main factory, in Fremont, California, was closed for much of the second quarter for the same reason. .
But the company has been able to sustain its quarterly profit climb due to a remarkably strong reversal in the Chinese market and a rapid ramp of production at its Shanghai plant, which is not even 2 years old. age.
The company has now recorded five direct profit margins, a key consideration for adding Tesla to the S&P 500, one of the most comprehensive stock indices in the world. Not only does this recognize the company’s performance during the pandemic, it will also strengthen its credibility with institutional investors who will now be more likely to add Tesla shares. their records. Index funds also need to add Tesla to their listings.
Tesla shares rose nearly 6% on Friday to $ 695, and are expected to see another rise once trading begins Monday.
“The time added may cause a short-term frenzy, but usually once a company is added, the stock price will settle down a bit,” said Tu Le an established expert in Beijing at Sino Auto Insights.
Meanwhile, Tesla is on track to achieve the half-million delivery goal that Elon Musk has been aiming for since 2018. By the end of September, the company had nearly 320,000 vehicles. delivered worldwide. Last year, it delivered 367,500 cars.
While Tesla will not break sales by region, the latest data from the China Passenger Car Association shows that the U.S. company sold 113,655 Model 3 sedans in China from January to November , making it the best new power vehicle in the country. NEVs include electric cars, plug-in hybrids and fuel cells.
Tesla has boasted several times that it is moving closer to its 500,000 car delivery target this year, despite the pandemic, which has affected the global economy and the demand for cooling cars as a result. suddenly increased in remote work.
Ives at Wedbush said the half-million goal is “within reach,” citing the stronger-than-expected move that the Shanghai-made Model 3 is getting in China.
“COVID-19 has not had such an impact on Asia, especially China,” Ives said. “If you look at the last three or five months, you can see more recycling in China than in other parts of the world that has helped Tesla unfairly.”
You at Sino Auto Insights agree. “If it wasn’t for China, it would take Tesla at least two or three years to sell the 500,000 units.”
By having a factory in China Tesla has greatly helped reduce its manufacturing and logistics costs. The U.S. retailer was able to make the starting price of its Model 3 sedans in Shanghai for the third time this year, cutting the price to 249,900 Yuan ($ 36,805) in October. Despite the declining price tag, Tesla-made vehicles in China still have a 20% to 25% higher profit margin than their cars made elsewhere, making them the key your company ‘s profit path, according to Ives.
“The Fremont factory supplied to the entire world before Shanghai Gigafactory, which creates a longer supply chain,” Tu said. “Building locally eliminates a lot of issues, and it makes it much easier to deal with the market.”
Despite the high points, however, it has not been entirely smooth for Tesla in China this year.
In October, the company began recalling nearly 50,000 U.S.-made Model S and Model X vehicles that were exported to China, according to a notice from China’s quality control authority. Earlier this year, Tesla was up against complaints from Chinese buyers and regulators for the slow reduction of a core chip in some of their Shanghai vehicles.
At the same time, competition in China is growing. Sales at local competitors such as NIO and Xpeng have been rising this year, closing in on Tesla. Traditional carmakers, including BMW and Volkswagen, have unveiled their own electric vehicles.
NIO on the NYSE list says the company will soon introduce two sedans to compete directly with Tesla’s Model 3, China’s most popular electric vehicle.
But for tech-savvy buyers in China, no other carmaker can match the power of Tesla’s awesome brand, according to Cui Dongshu, general secretary of the China Passenger Car Association.
“Tesla is very strong in its ability to offer original products and manage the supply chain,” he said, “Some brands say their products are comparable to Tesla, but We know that their technologies are far behind what Tesla can offer. “
While Chinese regulators recently tightened quality controls – leading to the recall of early Tesla models in China – Cui said the move is not intended to target only foreign players and is not it seems to be hindering Tesla’s growth in the country. “Domestic brands are also subject to the same rules,” he said.
To further expand its market share in China, Cui believes Tesla needs to cut prices further, as most Chinese buyers are targeting cars priced between 100,000 and 150,000 yuan.
For the next year, the Model 3 will remain a key driver for Tesla’s growth in China, but the company is also banking on its Shanghai-made Model Y SUV to help capture more market share.
Tesla began building Model Y production lines in Shanghai earlier this year and said its first SUV made in China is expected to be delivered in 2021.
“We believe Tesla’s Model Y will replicate the success of Model 3 in China,” said Yang Hang, a Beijing-based analyst at Chinese investment analysis firm EqualOcean.
China’s new energy vehicle sales are expected to reach 1.3 million units this year, up 8% from 2019. The number could jump to 1.8 million in 2021, according to an estimate by the China Automobile Manufacturers Association.
A fast-growing market would be good news for Tesla, which can expect worse competition from local competitors and traditional traders in the coming years.
“I don’t see this as a winner taking every game,” Ives said. “Electric vehicles now make up about 4.5% of China’s total car sales, and we expect it to grow to 10% in the next three years.”