Elon Musk plans to attend a ceremony to mark the first deliveries of made-in-China Tesla Inc. vehicles to customers on Tuesday, according to people familiar with the matter.
Tesla, which is already churning out more than 1,000 Model 3 sedans a week at its plant on the outskirts of Shanghai, handed over a batch of cars to a select group of employees on Dec. 30, but Tuesday marks the first deliveries to the general public. The ceremony is due to start at 3 p.m. local time at Tesla’s first factory outside the U.S., a milestone in Musk’s plans for the company he founded to go global.
Yet it comes at a challenging time in China’s auto market, where forecasts point to a third-straight annual drop in total sales. Electric vehicle sales plunged 42% in November from a year earlier as the government pared back subsidies on purchases. In a bid to lure buyers, Tesla cut the starting price of its China-build Model 3 sedans by 9% so that they’ll be more closely aligned to some local EV makers. It may cut prices further mid-year as it increases localization of components, people familiar with the matter have said.
After capturing about 5% of China’s car sales, the slowdown for electric vehicles could spell trouble for a launch that investors are watching closely for evidence that Tesla has what it takes to go global. A slow start for sales of its made-in-China cars would put more pressure on the unprofitable manufacturer’s finances, giving Musk little room for missteps to support a stock that’s hovering at an all-time high.
Musk and his team are looking at a market that’s very different from mid-2018 when the decision to build a Shanghai plant was announced. Back then, the industry’s sales were growing at a roughly 100% clip.
The tough market could mean that Tesla sells just 21,000 China-built Model 3s this year, according to LMC Automotive. That would qualify as a sluggish start given the Shanghai facility already builds more than 1,000 cars a week and plans to double production during the next year.
Yet others are more optimistic. Yale Zhang, managing director of Shanghai-based consultancy AutoForesight, said Tesla could sell about 100,000 Model 3 cars. Wang Lei, a Shanghai-based analyst for China International Capital Corp., said Tesla could sell a combined 120,000 Model 3 and Model Y vehicles.
Success in boosting China sales could propel Tesla to as high as $500 a share, a Morgan Stanley analyst, Adam Jonas, said in a December note to clients. Tesla climbed to a record of $443.01 on Friday after rising 26% last year. Analysts expect the stock to fetch $311.41 in 12 months, based on 31 target prices compiled by Bloomberg.
So far, the China project has gone smoothly. Musk’s visits helped the company get preferential bank loans and swift approvals for construction and manufacturing. And while the subsidies are being phased out, the locally built Model 3 still qualified for a sizable handout of as much as about $3,550 per car.
Tesla, a pioneer in electric cars, probably will have an edge for the next one-to-two years before the competition starts catching up, said David Whiston, an analyst at Morningstar Inc. in Chicago. Tesla’s vehicles have an industry-leading driving range to go along with the brand appeal.
Boding well for the company, registrations of Tesla vehicles in China rose 14-fold to 5,597 in November. While growing from a low base, the figure suggests healthy demand for its cars even though all the models available thus far have been the pricier imported versions of the Model 3, and the higher-end Model S sedan and Model X SUV.
TESLA Long (Buy)
Enter at: 455.14