Tesla began production in China with the aim of capturing the Asian market. China, is the largest market in the world, so the presence of the company in China, takes Tesla to a new level.
Due to the fact that for the China-made Model 3, car parts of local manufacturers were partially used, the shares of these companies, including companies that build charging stations, and even lithium manufacturers used in batteries, aroused great interest among investors.
South China Morning Post - Tesla cut the price of its China-made Model 3 by 9%, after securing tax exemptions from the Chinese government. Then, Tesla CEO Elon Musk unveiled a plan to produce the Model Y in China. To top it off, a Shanghai factory director said Tesla plans to increase its use of locally sourced parts to 100% by the end of 2020, up from the current 30%.
That was great news for China’s parts makers, like Tianjin Motor Dies Company, which jumped 82% since early December to a two-year high of 7.36 yuan on the Shenzhen exchange. Investors are piling in not just because of optimism that Tesla’s demand for Chinese parts and raw materials will climb in the coming years, they are also hoping for Tesla to spearhead a top-notch supply chain that can lead to home-made champions.
“The impact of the localisation 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.”
Thanks to the assistance of the Chinese government, the Tesla factory was built and began production of cars in less than 1 year. After many years of providing large subsidies, the government is gradually giving up incentives to increase competition between companies. China expects Tesla to lead the race in the world's largest car and electric vehicle market.
By 2030, annual auto sales in China will be about 35% compared to the current 3%, according to the forecast of investment research company Morningstar.
According to Morningstar Investment Management Automotive Equity Analyst, Ivan Su, Tesla's entry into China is likely to spur new demand for higher-class electric cars among Chinese families, as most electric vehicles at this moment were bought by corporate companies.
“Consumers were unable to find high-end domestic EV providers in the past,” Su said, adding that some buyers will switch from petrol cars to Tesla. “A good-quality brand name will make household users more willing to buy EVs.”
For now, analysts are hopeful that a host of suppliers will benefit directly from Tesla’s expanding production capabilities in Shanghai. Makers of EV components – including batteries, motor controller, electric engine and charging system – will be able to upgrade their products on higher demand, Guosen Securities’ analysts wrote in a report last week.
They recommended stocks with stable partnerships with carmakers. Among them, Shanghai-listed aluminium part producer Ningbo Xusheng Auto Technology generated 52% of its overall revenue from sales to Tesla, according to an exchange filing last week. Shares of the firm have soared by 42% to 48.34 yuan so far this year.
Guangdong Wencan Die Casting is another company that counts Tesla as a main customer. Revenue from Tesla accounted for 10% of its 2018 income, according to Guosen. Wencan shares have advanced by 27% since a month ago.
Lithium battery makers and lithium miners are also likely to ride the upwards trend to benefit, according to analysts at China Merchants Securities, who recommended China’s top battery maker Contemporary Amperex Technology among others in a report released on Wednesday.
Builders and operators of charging stations such as Shenzhen-listed Qingdao Tgood Electric will also see huge opportunities, Sinolink Securities analysts said in a report issued on Tuesday.
Featured image: Xinhua via AP (Gigafactory in Shanghai, on January 7, 2020)
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