Can China Be A Key Market For Tesla Motors?

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It appears that Tesla Motors‘ (NYSE:TSLA), after facing several challenges in the region, is finally getting its China strategy right. The company sold 1,345 vehicles in China in Q3, 2015 around 50% higher than the sales in Q2 2015. China accounted for nearly 11% of the company’s global deliveries in Q3 2015. [1]. While the next quarter results will confirm this trend, it appears that government policies promoting electric vehicles in the region are finally working to the advantage of Tesla. ((Beijing To Change Licenced Plate Lottery Rules For EVs, BFN News, September 2015)).  Although it faces stiff competition from local players in the region, we believe that, if Tesla gets it strategy right, China could be a huge growth opportunity for the company.

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China Forecast To Be The World’s Biggest Electric Car Market

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According to China Association of Automobile Manufacturers, the worldwide electric car sales are expected to reach 600,000 in 2015 of which sales in China will be around 220,000 to 250,000 vehicles, making it the largest EV market in the world, ahead of the U.S. [2]. This is more than the total cars Tesla has sold since the company was founded.  In Q3 2015 Tesla sold around 11,500 vehicles of which only 1,345 were sold in China. Although the company has made significant progress in China compared to the previous quarter, it still has a very small market share in the region. A 5% market share in China can account for the sales of Tesla in one quarter.

As the government in China rolls out policies that favor electric cars in order to solve the congestion and pollution problems in its cities, sales of these cars in the region are surging.  While this market is currently dominated by local players, Tesla can gain a decent market share in the region if it gets its strategy right for China. One of the major challenges for Tesla in its expansion in China was the lack of sufficient charging stations and the fact that its technology is incompatible with Chinese-government initiated charging network. The company is working on modifying its cars to meet the government standards and also appears to be expanding  its super charger network in the region at a rapid pace. [3].

Tesla Super Charging Stations

Tesla 25116

Source: Company Website

While China does present a huge opportunity for Tesla Motors, it appears that the company overestimated the demand for its vehicles in the region at the time of its launch. But  government policies are now in its favor and this market holds a strong growth potential for the company.  As the company adjusts its model for the Chinese market and works on a strategy to develop an edge over local competitors, the growth potential of the Chinese market will be even greater.  With the company exploring production possibilities in China which could lower sales price of its cars in China by a third, Tesla could be on course to capture this growing market. [4].

Notes:
  1. Tesla Motors Posts Strongest Quarterly Sales This Year In China, Bloomberg, October 2015 []
  2. China forecast to become world’s biggest electric car market, Reuters, December 2015 []
  3. Tesla Pledges To Meet China Charging Standards, The Wall Street Journal, May 2015 []
  4. Tesla CEO says could start China car production in 2 years, CNBC, October 2015 []