That Elon Musk-guided electric vehicle giant Tesla Inc. TSLA is heavily dependent on China, both on the supply and on the demand side.
An analyst at MorganStanley believes Tesla could be going through its “peak of dependency on China” in the next 12 months.
Domestic competition heating: In China, Tesla is in front of his Biggest competition ever from domestic Chinese EV manufacturers, analyst Adam Jonas said in a note. This follows the 8,000 yuan ($1,140) subsidy the company is providing to its Model 3/Y reservation holders in China, the analyst noted.
However, this grant is only available to customers who purchase Tesla Insurance.
The analyst sees other premium EV suppliers following suit, putting pressure on foreign JV brand ICE vehicle sales, including luxury models, into the fourth quarter. This would force local merchants to respond with more aggressive promotions, he added.
After the factory upgrade at Tesla’s Giga Shanghai, production is ramping up very quickly, the analyst noted.
The Chinese EV market was valued at $124.2 billion in 2021 and is poised to grow to $799 billion by 2027, Jonas said, citing Mordor Intelligence data. The country accounted for 62% of global battery electric vehicle sales year-to-date, he said.
While EV penetration has increased year-to-date to 19% in 2021 from 13% in 2021, Tesla had a 9% market share in China, behind the non-luxe and budget Wuling, he noted.
China Story will lose importance: The rest of the decade will see rapid industrialization of Tesla’s NAFTA and EU supply chains to achieve compliance with programs like the US Inflation Reduction Act and its potential EU equivalent, Jonas said.
This will lead to a “natural dilution of China’s role in Tesla’s demand footprint and supply ecosystem,” he added.
Jonas has an Overweight rating and a price target of $383 on Tesla…
