Tesla China might improve it's Margins to 35% by Production Efficiency

Tesla China might improve it's Margins to 35% by Production Efficiency

Tesla began production in China to capture the Asian market. China is the largest market in the world, so the company's presence in China takes Tesla to a new level.

Now for the production of made-in China Model 3, only 30% of domestic parts are used. But, Tesla chief China said that by the end of 2020, Tesla plans to increase the use of parts from local sources to 100%.

“The impact of the localization of Tesla on China's EV car part supply chain could be similar to that of Apple on China's smartphone supply chain,” said Ivan Su, managing partner at Nio Capital, a technology-focused fund co-founded by Chinese electric vehicle maker Nio. “China will build a strong and competitive ecosystem of EV car part producers. Many Chinese carmakers will benefit from it, as costs decline and technology advances. ”

Tesla enthusiast and owner of Tesla cars, Ray/Twitter, shared a report published by the Chinese company Chuancai Securities.

Using domestic parts will be key to achieving higher returns with the MIC Model 3.

The report says:

“According to our calculations, as the level of localization of parts and components increases, the total cost of production of Model 3 will decrease by 20%-28%. It is expected that the total gross domestic profit will approach or even exceed 40%. In the future there is still room for lower prices. From a market perspective, Model 3 is expected to attract two types of customers: traditional luxury car enthusiasts and electric car lovers. The market area in China is more than 1.2 million units. Cars manufactured at the Lingang factory are expected to be in short supply."

“We assume that depending on the progress of Tesla’s parts domestication, the cost of raw materials will fall by 10% -20%. In this case, gross profit margin of Model 3 produced by the Chinese factory will reach more than 35%, which is much higher than the American factory by about 20% gross profit level.”

The report pays special attention to Model Y, which, as announced by Tesla CEO Elon Musk, will also be produced at the Shanghai Gigafactory.

Model Y and Model 3 are built on the same platform, and they can share 75% of parts and components, so both mass production and integration into the production chain will be faster than the initial process of building Model 3.

"The price of an SUV will exceed the price of cars of the same class by about 10%. We predict that the final actual sale price of Model Y will be in the range of 329,000 to 561,000 yuan per vehicle. But electric cars save almost 10% of the purchase tax, and limited the cost of buying city licenses will further reduce the cost of buying cars. In addition, an additional configuration of 7 seats will also significantly increase the recognition of Model Y in the market."

The Chinese government strongly supports the development of Tesla. Both sides are expected to continue to collaborate and continue to bring new breakthroughs.

During a meeting between Musk and Li Qian, secretary of the Shanghai Municipal Party Committee, Qian said he would fully support Tesla in order to expedite the subsequent construction of the project and to expand capacity as soon as possible. Tesla CEO said, the company will continue to expand its business plan in Shanghai, introduce new technological research and development and release of new models in Shanghai, expand cooperation in the production chain with Chinese enterprises and Shanghai enterprises, and also look for ways to expand cooperation in Shanghai in the field of clean energy, urban transport and other areas.

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Featured image: Wautom

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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