An aerial view of Tesla’s Shanghai Gigafactory in Shanghai, China, March 29, 2021.
Chu Xiaolu | Getty Images News | Getty Images
From a handshake with Chinese officials Visit China’s top ministriesElon Musk’s trip to Beijing has drawn attention to China’s place in the global electric vehicle market.
Anthony Sassine, senior investment strategist at investment management firm Kraneshares, said the Tesla CEO’s visit to China was a “very important one” for him.
China accounts for 50 percent of Tesla’s vehicle sales and 20 percent of its production capacity, and the visit will “set the record straight and make sure he’s aligned with (the Chinese Communist Party),” Sassine told CNBC’s “The Street” Sign Asia. “
On Tesla’s April earnings call, Musk identified U.S.-China tensions as a risk to the company’s 2023 forecast.
Politics and Macroeconomics
Sahin said the visit could also be seen as a “political statement” to China, with business leaders such as Musk and JPMorgan Chase & Co CEO Jamie Dimon “telling politicians on both sides of the Pacific that business needs political stability”.
Politics is not the only reason. Sassine noted that the macro environment for EVs in China has been “difficult,” highlighting the end of China’s subsidies for new EV purchases and rising U.S. interest rates
Faced with such a situation, companies are slashing prices to boost sales, which will hurt their profits, he said.
price war
The fact that Tesla was forced to cut prices in the first place shows how important the Chinese market is to the U.S. electric carmaker, said Bill Russo, founder and chief executive of strategy and investment advisory firm Automobility.
“It shows how important it is to defend the Chinese market and how important it is to your global system that you need the size of China to serve you,” he said on CNBC’s “Squawk Box Asia.”
Russo said Tesla needs the economies of scale China provides to maintain its cost advantage globally, “but in order to maintain that, you need to make sure you stay relevant here.”
However, this has not been easy for Tesla. He pointed out that China is the most competitive market for electric vehicles, with Tesla competing with several local companies for supremacy. “Unlike the rest of the world, Tesla is not the only leader in this market,” he added.
Asked whether Tesla’s price-cutting strategy was appropriate, Russo said Tesla was “struggling with an old product mix” — the Model 3 was launched three years ago and the Model Y two years ago.
As a result, it has had to compete on price with Chinese electric car companies that are launching new models and deal with an aging product portfolio.
Russo noted that Chinese EV makers BYD Sales of extended-range hybrid vehicles. It’s “a weapon that Tesla doesn’t have,” he added, adding that BYD also outsells Tesla in the pure-battery electric business.
As a result, Tesla has to rely on pricing to maintain its competitiveness, unlike the rest of the world where it doesn’t face such intense competition.
“The problem is that Tesla stands for ‘premium EV’ everywhere else in the world, but in order to fight that in China, you have to fight a price war,” he said.
“Generally, the winners in price wars are the companies that can outprice you, and right now Tesla isn’t the lowest-priced competitor in the market.”