Tesla's Model 3 Could Hit A Home Run In China

May 04, 2016 1:21 PM ETTesla, Inc. (TSLA)52 Comments
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  • Tesla Motors could hit a home run in China with the Model 3 as the vehicle is competitively priced not in just the EV segment, but also undercuts luxury vehicles.
  • China has turned out to be the second-biggest market for Tesla for Model 3 pre-orders and this is not surprising considering the price point and the low booking price.
  • Tesla is on track to set up a facility in China, which is a smart move as this will help it avoid import duties and also benefit from subsidies.
  • Tesla has already proven with the Model S that it can eat into the full-size luxury sedan market, with sales outpacing the Mercedes S-Class in the U.S. last year.
  • Mercedes owns 80% of the luxury car market in China, so Tesla’s Model 3 will allow it to gain share in this market due to lower pricing.

Toward the end of March Tesla Motors (NASDAQ:TSLA) unveiled its most affordable car so far, the Model 3. The company is offering a reservation for a down payment of roughly $1,000. As a result of the low booking amount for Tesla's most affordable car yet, the company has received almost 400,000 pre-orders.

The excitement is already evident with hundreds of Tesla fans across the U.S. and other key markets lining up outside dealerships even before the car was officially unveiled. This enthusiasm and the competitive pricing of the Model 3 helped Tesla achieve more than twice the pre-orders it expected. More specifically, Tesla's Model 3 seems to have struck a chord with the Chinese customers as China has turned out to be Tesla's second-biggest market in terms of pre-orders for the Model 3, even though the company did not reveal how many orders it has received from China.

So, what is it that has made the Model 3 click in China, and will the company turn this car into a success in the country? Let's find out.

How will the Model 3 fare in China's EV market?

Tesla has not been as successful in China as it has been in the U.S. The reason could be that Tesla's previous models have not been priced right so as to fall in the range of other electric vehicles that are on sale in China. For an electric car, the Model S and Model X have proved to be very expensive for most Chinese customers.

These two models start from a price of $70,000 to $80,000 and even go beyond the $100,000 mark. At such premium pricing, it is difficult to drive numbers in China even though the need for EVs in the nation is strong. At present, the short-range equipped and low-power cars are enough to serve the purpose

This article was written by

Alpha Investor profile picture
Dhairya Mehta is pursuing the CFA course. I hail from Indore, India. I look for investments that generate strong value in the long run. I also help investors avoid pitfalls through my analysis. My style of investing is contrarian.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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