By, Brett Scully
After years of countless production hiccups, Gigafactory 3, Tesla’s new Chinese production plant, is officially in full force as the new Shanghai plant began production and delivery in early 2020. With this new plant already on pace to produce over 1,500 Model 3s per week, Tesla’s entry into China, the largest electric vehicle (EV) market in the world, is a massive step for Tesla’s future EV domination.
Notwithstanding this new plant, China’s reduced citizen subsidies have sent the demand for electric vehicles plummeting from a nearly 100.0% positive one-month increase to a 42.0% decrease. This trend had developed after substantial investments into Shanghai had already completed, and may sway potential sales expectations way off track. What does the future decade look like for Tesla?
Despite economic predictions setting Tesla’s Chinese market sales figures at roughly 21,000 units, some experts believe that with Tesla’s brand recognition and lowered prices, Tesla could still sell upwards of 100,000 Model 3 units in the Chinese market in 2020 alone. With Tesla’s newfound, tariff-free production haven in Shanghai, accompanied by substantial economies of scale, Tesla has been able to cut its Model 3 prices by almost 10.0% from US$51,000 to US$46,400. Combining these savings with an additional 7.0% government subsidy, Tesla will be able to sell their Model 3s in the Chinese market at just under US$43,000, placing themselves as a worthy competitor in a growing marketplace. Regardless of criticism, Tesla CEO, Elon Musk, still believes that they could easily ramp up production to 500,000 in a few years’ time.
Being that China still remains the world’s largest EV market, it’s clear that being able to remain competitive here is crucial to maintain Tesla’s global brand growth. With that being said, Tesla must continue to cut their costs if they want to stay competitive in the Chinese market, the cost-gutting market of the world. Some experts believe that with proper localization and continued economies of scale, Tesla could reduce their Model 3 prices down another 20.0%, bringing the cost closer to some ‘non-luxury’ competition.
Despite the potentially devastating market changes in China, it’s clear that the market is still optimistic. On January 3rd, 2020, Tesla was trading at an unprecedented high of US$443.01 per share. In Tesla’s last quarter, they delivered a record 112,000 units, bringing their annual total to 367,500, a 50.0% increase from 2018. Not only that, but some experts have bumped Tesla’s future price target from US$375.00 to US$515.00 given this news, an incredibly high number for a wall street price analysis.
With Tesla’s record-breaking fourth quarter in 2019 and the potential 2020 Chinese market breakthrough year, what else is cooking in the Tesla pipeline? Berlin. Tesla has announced that they plan on opening their 4th Gigafactory in Berlin, Germany in order to further expand the brand into Europe. With only a 10% EU subsidy of a little over $400 million, the new factory is expected to cost Tesla upwards of $3.6 billion before production can start. Although there isn’t much information on this factory as of yet, Tesla is expected to begin production this month and be up running by the end of 2021. Tesla aims to produce 500,000 vehicles per year in this plant and will produce the Model 3, Y and future models.
With this non-stop Tesla-positive news cycle, could 2020 be Tesla’s biggest year to date? In such a volatile market with a company that has a history of running into production problems, it’s never a clear-cut answer. Nevertheless, the potential is there, and should everything go Elon & Tesla’s way, Tesla could yet again crush expectations.
Featured image by Charlie Deets.