Tesla and China: mutual advantage cooperation

Tesla and China: mutual advantage cooperation

Analysts may have under-appreciated the tremendous revenue implications for the Shanghai plant of Tesla

Established in record time with the help of the Chinese authorities, Tesla can plug into what is likely to lead to a huge increase in electric vehicle sales in China in the next few years. Strong growth in electric vehicle sales in China is due to begin next year. This is a win-win game for both Tesla and the Chinese authorities.

The Shanghai venture further opens up significant opportunities in Asia for Tesla. It will become the most important crown jewel for the company, at least until the advent of GF4 in Europe.

EV skeptics misunderstood the slowdown in electric vehicle sales in China this year. The government’s policy is to focus sales on high-quality manufacturers and weed out many of the emerging low-quality electric car manufacturers. The government seeks to achieve this by temporarily reducing subsidies and introducing new barriers to entry. They are implemented through financial measures and quality control measures. One of the reasons the authorities support Tesla is because they see the brand stimulating further enthusiasm for electric cars in the country as a whole. It is Tesla who is now receiving generous support from Chinese investors and authorities.

In the next couple of years, incentives for manufacturers of high-quality electric vehicles will be updated. The government plans to sell 2 million electric vehicles next year. Details of their plans can be seen in the official IEA (International Energy Agency) and in China’s Energy Policy Guidelines. To reach their 2 millionth figure next year, the government is expected to strengthen incentives in early 2020.

Source: IEA

The medium-term government target is for 25% of auto sales to be EVs by 2025. This was the confirmed  most recently in early December by the Ministry of Industry & Information Technology. On present numbers that would equate to about 4.5 million EVs per annum in just 5 years' time. Tesla's target to produce 250,000 cars at the Shanghai plant would represent about 6% of the market. That should be an achievable target. It would represent about US $ 12.5 billion per annum in revenues on a conservative cost estimate. In 2018, Tesla's auto sales had revenues of US $ 17.6 billion. That is one example of how transformative Shanghai can be for the company.

The long-term government goal is for 65% of car sales to be electric vehicles by 2035. At current rates, this will be about 12 million cars per year. By 2050, all car sales should be electric vehicles.

Pure electric vehicle category has shown healthy growth. Plug-in hybrids showed a decline. Associated with this story is a recent estimate that Tesla currently has the largest total supply of electric vehicles at the end of October - 807,954 units. This has exceeded that of BYD Auto, whose figures include many plug-in hybrids. This seems to prove wrong once more the comments by Tesla skeptics that plug-in hybrids were the future rather than Tesla's all-electric model.

The success of Tesla in China is beyond doubt, and 2020 will be even more productive for their cooperation.

The welcome being extended to Tesla in China is now being replicated by politicians in Germany as well in connection with the GF4 planned for Berlin. In both Asia and Europe, this support should help spearhead a rapid expansion of Tesla revenues.

The good news coming out of Shanghai is no doubt partially responsible for the recent surge in the stock price.

Chinese authorities back Tesla for its technical excellence and brand strength. They see this as encouraging Chinese consumers to buy more EVs. The Shanghai facility represents a relationship of tremendous mutual advantage for both Tesla and for the Chinese authorities.

Featured image: @teslacn/Twitter

About the Author

Eva Fox

Eva Fox

Eva Fox joined Tesmanian in 2019 to cover breaking news as an automotive journalist. The main topics that she covers are clean energy and electric vehicles. As a journalist, Eva is specialized in Tesla and topics related to the work and development of the company.

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