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Tesla China Factory; Investors Will Believe It When They See It

Tesla China Factory; Investors Will Believe It When They See It.

“Even by Tesla’s timelines – which have a tendency, shall we say, to be a bit optimistic – production in China would not begin until 2019

Tesla Inc announced it plans a factory in China, but investors, once bitten and twice shy of some of the company’s production claims, will believe it when they see it.

Tesla announced what it called a preliminary agreement with the Shanghai government to build a factory with a 500,000 a year capacity to build Model 3s and eventually the planned SUV version, the Model Y.

Barclays Equity Research said there is a long way to go before Teslas actually make it off a production line in China.

“Even by Tesla’s timelines – which have a tendency, shall we say, to be a bit optimistic – production in China would not begin until 2019 and ramp fully for 2-3 years after that,” said Barclays’ analyst Brian Johnson.

Johnson said several hurdles need to be jumped, including finding a site, obtaining financing, localizing battery production with Panasonic or another partner, and building the factory. The mid-2020s would be a more realistic target, he said.

Meanwhile Tesla claimed to have hit the production target of 5,000 Model 3s a week, and claimed to be able to hit 6,000 a week by the end of August, and on to 10,000 a week as it fixates on the eventual target of 500,000 a year.

Morgan Stanley said sustaining Model 3 output at 5,000 to 7,000 a week would boost Tesla profits and maybe ward off the need for a capital increase, but it doesn’t expect even the 5,000 a week level to be attained regularly until the first quarter of next year.   

Reduce operating risks
BMI Research liked the idea of Tesla opening up in China.

“Tesla’s plan to produce its electric vehicles in China will allow it to reduce operating risks associated with any potential future trade disputes between Washington and Bejing as well as giving the automaker more direct access to a fast growing EV market. That said, Tesla will face tough competition as a number of domestic and foreign automakers are set to begin domestic EV manufacturing over the coming years,” BMI said in a report.

“By producing cars in China, Tesla will have more direct access to the market, enabling the automaker to quickly adapt to consumer demand. This will therefore better position the American automaker to tap into China’s fast-growing market for new-energy vehicles, where it sold around 14,779 vehicles in 2017. This gave the company about 3.0 per cent market share of China’s battery-powered EV market, placing it as the number 10 brand in that segment,” BMI said.

General Motors, Ford, BMW and Volkswagen have already said they plan to make electric vehicles there for the China market.

Europe next
Tesla has said it will reveal its plans for a European factory towards the end of this year. Currently, Germany is said to be the favourite location for the combined car and battery factory, with Portugal, Czech, Poland and Hungary said to be interested too.


 

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