Tesla can’t live without China

This should now be the most difficult time for Tesla in China since it entered the country.

In early May, a Tesla “suddenly accelerated” and crashed into a concrete pillar in an underground parking lot in Guangzhou, killing the passenger. In mid-May, a Tesla in Zhejiang Province knocked down two traffic police officers, one of whom was killed in the line of duty.

All of these accidents were caused by the quality of the vehicle or the driver’s handling problems. At the same time, there were several other incidents: after the female owner made a big fuss about the auto show, Tesla hit back strongly, but then the central media criticized it by name, and Tesla softened up and cooperated; in early May, the State Internet Information Office issued a policy to prohibit the transmission of car data outside the country without permission, and Tesla expressed its support; the Association of Passenger Associations announced Tesla’s sales in China in April, which plunged 67% from the previous month, making analysts at home and abroad jaw-dropping.

There is more or less a connection between these events. The central question is, what is wrong with Tesla in China?

Reuters came out with a report on May 11 that Tesla has suspended buying land for a factory expansion in Shanghai and temporarily shelved plans to make the Shanghai plant a global export center due to uncertainty in U.S.-China relations. This has heightened concerns about Tesla’s situation in China, and some voices are starting to emerge: Is Tesla pulling out of China?

The real situation, perhaps, is not so simple.

China is Tesla’s largest market outside the United States, contributing more than a quarter of its sales and more than a fifth of its revenue in 2020. Since the fourth quarter of last year, about 30,000 to 40,000 Teslas produced in Shanghai, China, have been shipped each quarter for export to countries like Europe and Japan, where Tesla does not yet have its own factory already in production and relies heavily on Shanghai’s capacity.

Tesla’s sales really exploded, including the stock price began to soar, in fact, from 2019, that is exactly when Tesla domestic Model 3 began mass delivery. Shanghai’s production capacity and China’s market add to Tesla’s ambitious hegemony.

Having come this far, even if it is criticized by the central media, regulated by policy and rubbed on the ground by public opinion, Tesla still expresses its support and cooperation. Because, at least for now, Tesla can’t leave China.

The Magic April Plunge

Tesla’s sales in China in April came out to the dismay of analysts at home and abroad.

According to the data from the Passenger Association, Tesla’s wholesale sales in China in April were 25,845 units, and many people took this data and compared it with the 35,478 units in March, concluding that Tesla’s April sales in China fell 27% from the previous year.

But in fact, this calculation is wrong. The real decline is 67%.

Deep Burn asked the Federation to confirm the statistical caliber of Tesla’s China sales: Before April this year, the Federation published Tesla’s sales in the Chinese market every month, the number of retail sales, which does not include exports, but in April not only published domestic retail sales, but also published export sales.

In April, Tesla sold 25,845 cars in China, of which only 11,671 were sold domestically (6,264 Model 3s and 5,407 Model Ys), while the remaining 14,174 were shipped in Shanghai for export.

The data of 11,671 domestic sales basically matches the data of China Automotive Industry Information Network. The latter data shows that the number of China-made Tesla licenses in April was 11,949, compared to 34,714 in March.

So, Tesla’s sales in China fell 67% in April compared to March, and Model 3 and Model Y fell 75% and 47% respectively, which can be described as a plunge.

On the other hand, in terms of single model sales, in April, the Hongguang MINI sold 26,592 units, 4.2 times more than the Model 3. BYD Han also sold 5,746 units, which is already very close to the Model 3 and more than the Model Y. The Ideal ONE sold 5,539 units, more than the Model Y.

What exactly happened in April to make Tesla China’s sales decline so serious?

Many would think it was the impact of the Shanghai Auto Show rights fiasco. But the Shanghai Auto Show only started on April 19, and the storm came to a climax at the end of April, so the impact on orders and deliveries will not be seen until May or June, when many owners placed orders in April and had to wait in line to pick up their cars.

That is to say, in April Tesla orders are not lacking, then the lack of capacity?

The Association replied to Deep Burn that the reason for the large difference between Tesla’s April sales and March sales is because of the large difference between the end of the quarter and the beginning of the quarter, in addition to Tesla’s transformation of the production line in April. First Financial also reported that the Model Y production line at the Shanghai Super Factory was shut down for two weeks in April to upgrade the production line equipment, and sales fluctuated as a result.

But Tesla’s main sales model in China is the Model 3, and the Model Y has not yet taken off, and it was not the Model Y that saw the biggest drop in sales in April.

In any case, Tesla’s performance in the Chinese market in April was indeed poor.

However, Tesla China’s exports are not relaxing. At present, the domestic Tesla produced in Tesla’s Shanghai Super Factory is not only sold in the domestic market, but also partly used for export. 14,174 domestic Teslas were exported to Europe and Japan and other countries in April, even exceeding the sales in the local Chinese market, setting a record for Tesla China’s exports.

According to Cui Dongshu, secretary-general of the Passenger Association, Tesla exports at least 30,000 to 40,000 units a quarter, and the scale of the year is more than 100,000 units.

Yang Li, a partner of Jiuqian Consulting, told Deep Burn that the number of Tesla’s exports in April is real. Jiuqian did data tracking and found that Tesla Shanghai’s production volume in April was not significantly lower than in March, while domestic deliveries fell in April because Tesla chose to deliver most of its vehicles overseas.

“Our visits to Tesla’s domestic stores also show that Tesla’s domestic delivery times get longer.” Yang Li said.

In other words, with the limited capacity of the Shanghai factory, Tesla is dividing more capacity to overseas markets to ensure the stability of exports.

How important is China to Tesla?

Many people underestimate the importance of China to Tesla.

It goes without saying that there is a huge market demand. Tesla’s products are sold globally, and China has been its second largest market outside of the United States for the past few years.

Back in 2016, Tesla’s total revenue for the year was $7 billion, with China contributing $1.1 billion, when the U.S. market was also only generating $4.2 billion in revenue. Over the past few years, Tesla’s revenue in China has risen as sales have increased. in 2020, Tesla earned $6.7 billion in China, raising its share of global revenue to 21 percent, while the U.S. market’s share of revenue dropped to less than 50 percent. In the quarter just past this year, the Chinese market already contributed $3 billion in revenue to Tesla, accounting for 29 percent of global revenue.

Tesla can't live without China

In contrast, Tesla’s early focus on the layout of the European market – the Netherlands and Norway, the two countries, in Tesla’s revenue share, has not been more than 10%, after 2019, Tesla simply give up in the earnings report to disclose their revenue data alone. The global center of gravity, is constantly shifting to China.

Currently, Tesla has only four factories completed worldwide (excluding those under construction): the Fremont plant, the Nevada battery factory, the Buffalo, N.Y., plant, and the Shanghai superfactory in China. The first three are in the United States, and the Shanghai plant is Tesla’s first overseas superfactory.

Tesla’s 2021 first quarter earnings report shows that the Shanghai plant has an existing annual capacity of 450,000 units, accounting for approximately 42.86% of Tesla’s global production capacity. In other words, half of Tesla’s global production capacity is in China.

The Shanghai government had been a strong supporter of Tesla, giving it the green light to build a factory all the way in China. In order to land the Shanghai plant, Azera, which had already started construction in Shanghai, had to abandon the city and go to Hefei under the “one city, no two factories” policy. Tesla’s Shanghai plant became the first and only foreign passenger car plant in China that did not require a joint venture.

Musk described what he saw in China as “shocking” when the plant went from official opening to trial production in 10 months, some 14 months earlier than Tesla had expected.

At the height of the epidemic last March, Tesla’s Shanghai plant was one of the first to resume production when its U.S. factories had to shut down extensively, and if not for the Shanghai plant, Tesla would not have been able to complete its production plan of 500,000 units by 2020.

Most Chinese, perhaps, are used to the Chinese speed that shocked Musk. But when we put our eyes on other countries, it is a completely different light.

Tesla can't live without China

In November 2019, Tesla announced that it will build its first European factory in Berlin, Germany, and plans to start production by July 1, 2021. Very different from the sudden progress in China, the Berlin factory has been repeatedly stalled by a lengthy approval process.

Last December, for example, a German court asked Tesla to suspend forest clearing work at the site of its proposed factory, citing concerns from local environmental groups that deforestation would endanger hibernating slithering snakes and lizards underground.

In addition, Tesla needs to comply with technical regulations for water protection zones during construction, as well as local noise protection requirements, all of which require various temporary permits. Tesla has also been fined 12 million euros by the local German government for end-of-life battery recycling issues.

All of these factors are slowing down the start-up of Tesla’s Berlin plant. Today, it is less than 40 days from its planned start-up time. If the Berlin plant is delayed, then Tesla will have to continue to rely on the capacity of the Shanghai plant.

In addition to demand and production capacity, Tesla also needs the data of the huge number of car owners in China. According to Musk’s vision, the future Tesla must achieve fully autonomous driving, which needs to be built on the basis of machine learning. That’s why Tesla has chosen a vision route with cameras at its core. This requires the car to continuously collect driving data, and then use the algorithm to carry out machine learning.

Without data from China, Tesla’s self-driving technology is missing a piece of the puzzle.

Tesla in the cracks

Before 2021, thanks to the smoothness of the Chinese market, Tesla’s global strategy was able to advance rapidly – the U.S. factory firmly guarding its home base in the U.S.; the Shanghai factory, as a successful sample of its overseas expansion, is capturing China, the world’s most important strategic high ground, while also testing out other overseas markets; the German factory has already started construction to prepare for the future occupation of Europe.

But in 2021, starting with the Shanghai Auto Show, a rift emerged in the relationship between Tesla and Chinese consumers, as well as the relevant regulators.

More and more product quality problems were exposed and even magnified, and Tesla was frequently scolded on the hot search, as if it had become the public enemy. This is just the surface. The tightening of regulation has made Tesla’s China situation delicate.

In March, news broke that certain regional regulators in China proposed that Tesla cars should not be parked within sensitive areas to prevent on-board cameras from collecting data, and in April, the National Information Security Standardization Technical Committee released a draft that proposed that road, building, terrain, traffic and other data collected by net-connected cars through cameras and radar should not leave the country. Then came May, when the National Information Security Office issued a policy that prohibits car data from being transmitted outside the country without permission.

How to regulate Tesla is already on the regulator’s agenda. Of course, this is difficult for both Tesla and regulation.

In contrast to the extreme arrogance of the owner-oriented, Tesla is very submissive to the regulatory requirements, flagging its support and saying it will build a data platform in China in 2021 for owners to check vehicle driving data.

The Chinese market is so important that Tesla has to be soft, especially at this critical point today.

At this stage, Tesla is not only inseparable from the Chinese market, but also from the Chinese factory in Shanghai.

In Europe, the traditional car companies, represented by Volkswagen, have slowed down since last year and launched electric models to grab the market vigorously. But Tesla has no factories already in production in Europe, leading to a decline in its market share.

Some overseas analysts said that in 2020, Tesla’s sales in 18 Western European countries fell by 11% year-on-year. data from JATO Dynamics showed that in 27 EU countries, Tesla’s sales fell by 12%, and its share of the European pure electric vehicle market was 13.4%, behind the Renault-Nissan Alliance (18.6%) and the Volkswagen Group (23.9% ).

The European market is very important to Tesla’s global strategy. In the past, Tesla relied on the U.S. factory for supplies in Europe, and now relies on the Shanghai factory for “blood transfusion” to maintain its car supply in Europe.

In October last year, Tesla China announced the launch of the export business of the whole car, the Model 3 produced by Tesla Shanghai Super Factory was loaded at Shanghai Haitong International Auto Terminal and sold to more than 10 European countries such as Germany, France, Italy, the Netherlands, Portugal, Switzerland and Sweden, the first batch of which was about 7,000 units. That month, Tesla left only 12,143 units for the local Chinese market.

According to the RideLink, each month since that time, Tesla China has exported about 10,000 domestic Model 3s. Tesla admitted in its earnings report, “The increase in exports of cars produced at the Shanghai Superfacility has effectively eased our delivery pressure.”

Both to play the Chinese market and the European market, but the current production capacity is limited and scarce, so before the Berlin plant is officially put into operation, how to allocate the capacity of the Shanghai plant has become a selection problem left to Tesla.

Yang Li believes that the April rights incident will have an impact on Tesla’s sales.

According to interviews done by Jiuqian Consulting with 1,800 domestic consumers in the second half of last year, EV safety is the threshold condition for consumers to buy, and safety anxiety is second only to mileage anxiety.

Tesla’s past strengths were safety and technology, and it was the definer of the industry. The general impression given to consumers was that Tesla’s technology was good, safe and reliable, and higher in consumers’ minds than other brands.

However, all safety incidents related to Tesla since the rights issue have been deeply dug by the media, destroying Tesla’s past safety perception advantage.

At the same time, compared with other domestic brands, the main customer group of Tesla consumers are younger, more influenced by public opinion, and more capable of collecting information on the Internet. Therefore the information of the rights event will be fully perceived by consumers.

The shorts are also once again targeting Tesla. Michael Burry, the prototype of the movie “The Big Short” and the man who became famous for shorting subprime mortgages, disclosed in a regulatory filing on May 17 that as of the end of the first quarter, the “Big Short” held a total of 800,000 Tesla puts, worth more than $500 million.

Since the beginning of April, Tesla’s share price has fallen by 13%, compared to the peak at the beginning of the year fell by 36%.

Don’t deify Musk, don’t demonize Tesla

As things stand now, Tesla is having a difficult time in China. And Musk’s past Silicon Valley “Iron Man” persona is gradually collapsing because of the currency speculation.

For a long time, Musk was a halo in China. He has many labels, such as highly educated elite, tech geek, serial entrepreneur, he builds electric cars, shoots rockets, and explores outer space.

In addition, he is not as serious and rigid as many entrepreneurs. He is very active on Twitter, often with amazing words and a big brain. He also gets close to Chinese consumers by eating traditional Chinese food such as Sichuan hot pot, Tianjin pancake fruit, and old Beijing Xisi buns.

This has given him a large fan base. As Tesla’s sales exploded last year and its stock price soared, Musk’s image was further deified.

But ever since Musk started publicly speculating in coins, his image has been crumbling.

First, Musk advocated Bitcoin frequently on Twitter, and in the first quarter, Tesla made $100 million by trading Bitcoin. And as the bitcoin price approached a high of $60,000 per coin and was rising sluggishly, Musk suddenly shifted his stance and announced that Tesla was suspending the use of bitcoin to pay for car purchases, on the grounds that bitcoin mining would actually have an environmental impact. Bitcoin prices then plummeted.

There is also Dogcoin. Such a “junk coin”, which many in the cryptocurrency community see as having no value, attracted a lot of retail investors to participate in the speculation with Musk jumping up and down, and saw its price skyrocket 130 times in the span of five months this year.

In late May, virtual coin prices generally plummeted and hundreds of thousands of people blew their positions, most of whom were retail investors who later bought after the high. Virtual coin prices were knocked back to their original form, and the deified Musk also showed his original form.

In the Chinese market, the arrogant Tesla, when there are more and more quality problems, superimposed on the delicate game relationship between the big countries, coupled with the reversal of Musk’s persona of cutting leeks, so incur a lot of scolding, “let Tesla get out of China” voice also up. Some ordinary traffic accidents have also been elevated and even demonized by the public opinion.

But in fact, Musk is still the same Musk, Tesla is also the same Tesla. The businessman Musk, has his own cunning and greedy side, the electric car pioneer Tesla, also has its own advanced place. At least now, from the point of view of product power, in the world, Tesla is still the leading intelligent electric car, whether in China, or in Europe, there are still a large number of consumers lined up to buy.

So don’t deify Musk, and Tesla shouldn’t be demonized. No matter how Tesla’s stock price rises or falls, how sales change, and what difficulties it’s actually experiencing right now, the market will vote with its feet. And at the moment, Tesla can’t leave China, and the problems it faces may have just begun.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/tesla-cant-live-without-china/
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