TSLA & China: 10 Things Tesla Stock Investors Must Know

by Robert Martin | April 14, 2014 9:30 am

TSLA & China: 10 Things Tesla Stock Investors Must Know

Tesla (TSLA[1]) stock investors have had a lot to process lately between battery fire prevention plans, delayed Model X production plans, skepticism around the company’s “Gigafactory” plans and wrinkles in its direct sales plans.

tesla tsla model s 185 TSLA & China: 10 Things Tesla Stock Investors Must KnowBut amid all the news — much of which has been weighing on shares of TSLA stock[2] — another plan is finally being put into action. This month, Tesla will finally begin its Chinese sales this months, with deliveries expected in the next couple weeks.

For Tesla stock investors that have forgotten about this news in the face of countless other headlines, here are ten things to know about the development:

  1. If you ordered a Tesla Model S in China, you’re getting more than just a sweet ride — you’re getting a visit from the one and only Elon Musk[3]. Yes, Musk will be personally handling the first customer deliveries later this month.
  2. That should pretty much sum up Musk’s enthusiasm about the market. But in case it doesn’t, remember that Musk expects Chinese sales volume to match sales volume in the U.S. as early as next year — something that, if true, could definitely make its mark on shares of Tesla stock.
  3. Then again, the Chinese expansion is hardly news to TSLA stock investors. Remember, the hot electric-car maker began taking orders way back in August and opened up its 8,600-square-foot store in Beijing just a few months later.
  4. It’s almost impossible to talk about China and not mention that it boasts the world’s largest population. But the sheer size of that population isn’t what matters for Tesla stock. According to car expert Jim Press[4] — Press was previously vice chairman of Chrysler and U.S. sales chief for Toyota (TM[5]) — only about 1% of buyers in China can afford the luxury car.
  5. Plus, price is an even larger obstacle in China because, as American imports, the cars don’t qualify for subsidies. Consider that, in the U.S., some states offer pretty darn generous subsidies for the eco-friendly ride, including a sweet $2,500 in California and even juicier $4,000 in Illinois.
  6. If you ask someone at Tesla, though, they would definitely note that the cars don’t qualify for subsidies in China … yet. As Diarmuid O’Connell, Tesla’s VP of Business Development, put it[6]: “We’re hoping the government will consider the role Tesla can have in catalyzing electric vehicle adoption in China and extend those incentives to Model S as well.”
  7. Of course, Tesla stock investors should note that Tesla is asking to be allowed to take a dive in a draining pool. Chinese subsidies for 2014 are being cut by 5%, while subsidies for 2015 will be cut by 10%. Those cuts are smaller than previously announced … but they’re cuts nonetheless.
  8. There are other obstacles to Chinese success for TSLA. The sales and service network isn’t fully developed, charging stations are lacking and China is behind pace to reach its target of housing 5 million alternative energy-powered vehicles by 2020.
  9. Competition also could heat up, especially if Tesla takes off. According to its chairman[7], Beijing Automotive Industry Holding is “planning to unveil a new electric car whose performance will transcend that of Model S by the end of 2015.”
  10. Still, Claudia Assis[8] over at MarketWatch believes the Chinese market is make-or-break for Tesla stock. As she put it, “Success for Tesla Motors is not a million-dollar question — it’s more of a 734,000-yuan question.” That’s because, as analysts have recently noted, demand for Tesla’s Model S has flatlined stateside while European sales have been soft for the most part.

As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.

Endnotes:
  1. TSLA: http://studio-5.financialcontent.com/investplace/quote?Symbol=TSLA
  2. much of which has been weighing on shares of TSLA stock: http://investorplace.com/2014/04/tsla-stock-best-stocks/
  3. a visit from the one and only Elon Musk: http://investorplace.com/2014/04/tsla-tesla-selling-china-elon-musk/
  4. According to car expert Jim Press: http://www.bloomberg.com/news/2014-03-31/tesla-says-china-general-manager-kingston-chang-left-the-company.html
  5. TM: http://studio-5.financialcontent.com/investplace/quote?Symbol=TM
  6. As Diarmuid O’Connell, Tesla’s VP of Business Development, put it: http://www.dailytech.com/Tesla+Motors+Wants+in+on+Chinas+EV+Subsidies/article34319.htm#sthash.EKeJk5Lo.dpuf
  7. According to its chairman: http://www.scmp.com/news/china-insider/article/1472145/tesla-no-apple-car-industry-say-chinese-state-owned-carmakers
  8. Claudia Assis: http://blogs.marketwatch.com/energy-ticker/2014/04/08/teslas-road-to-success-goes-through-china/

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