Tesla's demand in China

 As China strives to accelerate the speed of new energy in its auto industry, Tesla appeared in due course. After July 2018, Tesla announced the establishment of a factory in China. With the strong support of the Chinese government, Tesla was able to build the Shanghai Super Factory in less than a year. In October last year, the Shanghai Super Factory rolled off the first Tesla sedan.

Today, Tesla is betting most of its future on the Chinese market.

But in fact, many analysts believe that Tesla's entry into China is seen as a new engine for its growth. But since 2020, this matter has become complicated because China has huge domestic demand, but Tesla is extremely expensive. Today, Tesla is finding a way to balance brand and sales through continuous price cuts.

As more and more Chinese automakers enter the new energy field, increased competition has also affected Tesla's sales. In March 2019, Tesla's first price cut was met with collective opposition from Tesla owners. But in April 2020, Tesla reduced the price of the Chinese-made Model 3 by 10%. After October, Tesla again lowered the price of Model 3 by 8%.

So far, the price reduction strategy has not completely solved Tesla's problems. Indeed, in the past few months, when the Chinese electric vehicle market has recovered, Tesla has suffered a slight decline. In September, Tesla delivered 10,883 Model 3s in China, a decline of about 5% compared to the previous month.

After the third quarter earnings report was issued, analysts said that Tesla seems to be losing market share in China. That is, after the product's price cuts, China still has a huge domestic demand market. Does Tesla still have room for price cuts?

To a certain extent, Tesla is pinning its hopes on overseas markets to solve the production capacity of the Shanghai factory. Yesterday, Tesla has shipped Model 3 made in China to the European market. The export strategy is undoubtedly related to the cooperation of the Chinese government. It is reported that in order to build the Shanghai factory, the relevant Chinese authorities arranged for its subsidiary Shanghai Tesla to obtain a five-year US$1.26 billion factory loan and a one-year US$315 million operating loan. Beijing Tesla also received a US$700 million loan.

Behind the loan contract, it means sales volume and a better market. According to the contract, “By 2023, annual sales will be no less than 75 billion yuan, and the average car price will be 250,000 yuan. Tesla’s Shanghai plant needs to sell 300,000 vehicles a year to meet this demand.” As of now, Model 3 made in China has been reduced to 249,900 yuan. In the next few years, for the sake of sales, the possibility of lowering prices is still huge.

But Tesla's enthusiasm for the Chinese market remains the same. At the Tesla financial meeting on October 23, Musk said: “The production capacity of the Shanghai factory is still expanding. We feel very good about the achievements of the Chinese market.” It’s not just production capacity, not future demand. Perfect political correctness.

Although Tesla does not want to acknowledge some of the difficulties it faces in the Chinese market, these problems undoubtedly still exist. Re-export is just a short-term way to deal with production capacity, or just a way to get a temporary respite, not a long-term solution. In the Western European market, data shows that sales in the first half of 2020 have fallen by about 18%, and Tesla's electric vehicle market share in Europe has dropped from 27% in the third quarter of 2019 to the current 15%.

As the growth of the global electric vehicle market gradually turns from dream to reality, Tesla's future seems to be confusing.

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