- Strong May numbers from China show demand rising despite COVID-19.
- Shanghai production to be engine of production growth, with USA possibly adversely affected throughout the year.
- Asian sales will still be supply constrained throughout year as Fremont struggles to meet fast growing demand worldwide.
- Ability to ramp up wider range of product out of Shanghai is key to meeting 2020 sales targets.
- Individual country data from Asia showing growth this year but really substantial volume looks more likely in 2021.
Tesla (NASDAQ:TSLA) has seen surging sales in Asia so far this year, despite the COVID-19 pandemic. The latest figures for China prove the point. After 5 months of the year, it is now possible to draw some conclusions for the year as a whole. These indicate Asia will be vital for the company to meet its sales unit targets for the year, but COVID-19 uncertainties persist. Asia figures will be even more central to the company's prospects in 2021. They should then see rapid growth as economies recover from the pandemic and as Shanghai production increases to meet demand.
My recent article detailed the strong start to the year in Asia. Since that article, much further progress has been made and new data reported. Much of the media attention has been focused on some startling successes for the Model 3 in individual European markets. The Model 3 is the best-selling plug-in EV in the USA and in Europe. Tesla is though likely to remain supply-constrained in Europe until the Berlin factory opens next year.
Tesla sold a stunning 367,000 cars worldwide in 2019, more than in the previous 2 years combined. Its target of 500,000 cars for 2020 pre-supposes a post-pandemic recovery and the company being able to ramp up supply to meet the demand. Asia will be key to both the supply and demand side of the equation. The continent's importance will increase still further in coming years as production increases rapidly in Shanghai.
The Model 3 continues to be the model that dominates the world of plug-in sales as the figures below illustrate:
Source: The Driven
Despite some claiming otherwise, the Model 3 continues to be the best-selling EV of any type in Europe:
Source: Inside EVs
Across the Tesla product range, its products continue to dominate plug-in EV markets:
Source: Inside EVs
Market share seems not to be in doubt for Tesla. The Model 3 is the leading plug-in EV almost everywhere you look. It continues to increase market share in countries throughout Europe. Various recent figures I have seen show it is the best-selling plug-in EV this year in the U.K, Germany, the Netherlands, Portugal, Switzerland, Austria, Italy, and Belgium. However, market demand and total market size are subject to uncertainty because of the pandemic. The company sold about 104,000 cars in total in the first 4 months of the year.
All this is being done with the Model Y still running at low production capacity following Fremont's closure. There will likely eventuate in a rapid surge in sales in the second half of the year when production is fully up and running.
The Shanghai factory is currently scheduled to have the capacity to produce about 200,000 Model 3 vehicles per annum. This number is expected to ramp up further over time to hit about 300,000 annual capacity. The Model Y facility is coming up very rapidly. Sales in China and elsewhere in Asia look set to take up whatever Shanghai can manufacture. A recent report by Wedbush predicted sales of 100,000 Model 3's in China this year. The same report reckoned China growth has added about US$300 to the stock price this year.
The China Passenger Car Association this week announced Tesla had sold 11,095 Model 3 vehicles in the month of May. This almost tripled April sales numbers (at the time of writing, it is not clear but seems this number applies just to the Model 3 not to all Tesla models). Monthly figures for the model now comprise:
January = 3,183 units.
February = 3,958 units.
March = 12,709 units.
April = 3,675 units.
May = 11,095 units.
As my previous article predicted (it was not a difficult prediction), sales returned to a substantial number in May. The April decline was caused by buyers awaiting the price cut for May. The Tesla bears who said the April figures showed a decline in demand for Tesla were quite wrong. The Tesla Model 3 has been the best-selling EV in China every month this year except for that month of April, when the BYD Qin Pro EV topped the month.
Indeed, BYD Auto (OTCPK:BYDDF) is likely to remain Tesla's closest competitor. Its new "Blade" battery claims a 750,000 mileage, and the company is co-operating with other car manufacturers on their battery and on their other EV technology. Compared to Tesla's figure of 11,095 units for May, BYD sold 8,273 BEVs and 2,323 plug-in hybrids in the month. In some ways, the two companies are complementary as BYD's wide range of EVs and hybrids are at a lower cost point than Tesla's range.
Following the factory closures and the pandemic early in the year, when Tesla's Model 3 still dominated what was a reduced market, Tesla has sold 34,580 units. That would equate to 82,992 units for the year as a whole at this rate.
A more likely scenario is that unit sales will settle down at 10,000 units per month now, which would give a total of about 105,000 units for the year. That is a conservative estimate as it pre-supposes that the Model Y is not introduced into China in 2020. Some market rumours in China suggest there are already orders for 20,000 Model 3's in China for May, but it is best to wait for actual figures to emerge. The full month availability of the Long Range RWD Model 3 ex Shanghai is likely to be the main impetus here. Pent-up demand in general as China emerges out of the pandemic is also robust.
The world's largest auto market is becoming the world's largest EV market by an even greater margin than the current gap for the total of all vehicles. Tesla's position with the market leading Model 3 gives it huge potential in this growth market. The so-called "Tesla killers" we read about are somewhat notable by their absence in China. The problems Volkswagen (OTCPK:VWAGY) is having bringing new EVs to market have been well-reported. The company had targeted sales of 400,000 NEVs in China this year. In fact, it seems certain they will have to end up buying emission credits from others such as Tesla.
Chinese plug-in EV sales as a proportion of all sales are increasing more rapidly again this year. The pattern over the last 5 years is illustrated below:
Source: Clean Technica
The chart emphasises what I have been saying for some time, that Asia and Europe will be the centre of EV growth in coming years. The Chinese government has recently extended NEV subsidies up to end-2022. They may be gradually reduced during this period, although government policy tends to change in this regard. Reaching the goal of more EVs is more important than how it is done, apparently. In other measures, the government is prioritising government bodies purchasing EVs and giving extra incentives for cars with swappable batteries. That latter rule benefits NIO (NIO) which along with BYD is a more likely threat to Tesla in China than European or American marques.
One interesting new move is a carbon emission credit scheme for individual drivers. This was launched in June on the Beijing Environmental Exchange. Again, China is leading the world in new ways to encourage EVs and Tesla is in the right place at the right time.
In addition, local government authorities in China are offering a range of incentives. These range from free parking for NEVs to traffic management advantages for EV drivers.
China's target is to have EVs comprising 20% of all auto sales by 2025. Even based on zero growth in total vehicle sales up to that date, that would represent a target of 4.8 million vehicles per annum. The leading EV model in the country this year is the Model 3. So, Tesla's addressable market in China is clear.
Piper Sandler has predicted Tesla sales could rise to 650,000 per annum in China once the Model Y production ramps up. That seems reasonable and would give Tesla market share of about 13%. As I detailed here, the authorities are targeting 65% of all vehicles to be EVs by 2035. On current numbers alone, that would equate to 12 million cars. Last year saw a big increase in the proportion of fully electric cars as against hybrids, and this trend is seen to continue, to Tesla's advantage.
In a recent report, PwC forecast that EV sales worldwide will rise to 11 million this year, while ICE vehicle sales will decline by up to 40%. Europe is seeing faster growth in EV's this year. In the first 4 months of the year, EVs accounted for 8% of all vehicle sales, and this reached a stunning 11% in the month of April. The U.S. will probably become increasingly an outrider to the global environmental trend as Europe and Asia dominate. China is likely to be the largest EV market in the world for the next few months due to its faster recovery from the pandemic.
Tesla is still engaged in producing a fuller range of the Model 3 in Shanghai. I detailed this here.
What is intriguing is how rapidly the Model Y building is coming up. The shell of the building is now completed, as illustrated below:
It was previously thought inconceivable that Tesla could be supplying Model Y's out of Shanghai this year. If they could achieve this, it would give a huge boost to figures at the end of the year. Most likely, I think that they will be able to supply by Chinese New Year in February 2022. The company is through taking orders now and allowing customers to configure their vehicle requirements.
It is expected that next year production capacity there would be for about 300,000 Model Y's per annum. At present, the company is taking orders in Shanghai for the "Long Range AWD" model and the "Performance" version with the implicit assumption these will be supplied ex Shanghai. It seems unlikely that Tesla would supply the model ex Fremont this year. They are already supply constrained there, and the strategic plan seems to be to supply the USA from Fremont, Asia from Shanghai and Europe from Berlin. There are, however, reports of some Model Y's being supplied to Canada from Fremont.
The massive and rapid build-out in Shanghai is one sign that the company knows demand for its product in China is growing very rapidly. Another is the announcement that they intend to build out a further 4,000 Superchargers this year in China. At the start of the year, there were 2,500 Superchargers in the country. The company currently has 50 showrooms around the country.
Tesla's lead in batteries over its competitors is expected to increase further due to its partnership with CATL, China's largest battery manufacturer. The two companies are working closely together in an agreement set to last in the first instance to July 2022. CATL, in partnership with Tesla, seems to have cracked the way to the much sought after "million mile battery". This would be a product to last 1.24 million miles or 16 years. If nothing else, it would greatly increase the value of the used car product. It is reported that this will soon be available for the Model 3 manufactured in Shanghai and would provide yet another technological advantage for Tesla over the competition.
Tesla is building up further expertise in China through other partnerships. This includes with the Chinese arm of South Korean battery giant LG (OTCPK:LGCLF) and with Chinese mega company Tencent (OTCPK:TCEHY)
The country is seeing a surge in EV sales as my recent article detailed.
Despite the economic problems and the decline in the auto market, EV sales rose from about 11,000 units year-to-date in May 2019 to 20,000 units in May 2020. From April to May this year, petrol and diesel car sales fell 36.6%, while EV sales rose 127.3%. The Tesla Model 3 is the market leader by far. Prospective buyers complain there is currently no stock in the country. Some reports say further shipments from the USA will arrive about end-June. Other customers say they have been told to expect their orders in August or September.
Australia is a country where renewable energy is growing rapidly and where Tesla has a strong brand image through its energy storage projects. The country seems to have hit a tipping point in transitioning from ICE vehicles to EVs.
Based on 2019 sales totals for the country of 1,153,214 cars, if 5% of car sales this year became EVs, that would number 57,660 cars. If Tesla were to maintain their market share of 80%, that would represent 46,128 cars this year. That may be overly ambitious, based not on demand but on Tesla's ability to supply and sell. The country in addition has the third largest number of reservations worldwide for Tesla's new e-truck.
My recent article showed that Tesla has about 45% of the EV market despite strong local competition from the Hyundai (OTCPK:HYMLF) "Kona" and Kia (OTCPK:KIMTF) "Niro" models, in particular. This is particularly startling in a country where consumers tend to be fairly loyal to domestic brands.
Latest figures from the Korea Automobile Manufacturers Association show that Tesla sold 4,075 cars in April and supplied 87% of imported EVs. Earlier in the year, they had sold 138 cars in January, 1,433 in February, and 2,499 in March. The next best-selling importer of EVs was Nissan, with a not very grand total for the month of 99 cars.
In the January to April period, EV sales in the country rose by 40.1%. At the same time, the total car sales in the country declined 36.1%. As elsewhere, we are seeing total auto sales declining but EV sales increasing.
Korea also saw a trend, again seen elsewhere in Asia, in which consumers are switching from hybrid plug-ins to fully electronic BEVs.
Tesla was in fact the third largest car importer of any type of car, behind Mercedes Benz (DDAIF) and BMW (OTCPK:BAMXF). The fact that these high cost German brands were the two biggest imported brands in the country illustrate once again how mistaken Tesla skeptics are when they say Tesla vehicles are too high cost for Asian consumers.
Projections conservatively indicate that EV sales will comprise about 4% of the total auto market this year. Based on 2019 sales totals for the country, that would represent 64,000 cars. If Tesla were to maintain their market share that would represent sales of 28,800 for Tesla this year. If they were to maintain the monthly sales average of the first 4 months of the year, that would represent sales of 24,435. Market share is probably a better indicator, but the two figures are close anyway.
In March this year, Tesla sold 1517 cars, of which 1293 were the Model 3. This made the Model 3 the second most popular imported model in the country. It shows the Model S and X are also popular there.
One thing owners are pressing for is more charging stations to be built out to meet the fast-rising demand. One new one under construction at Xiulan is illustrated below:
Source: Tesla Motors Club
The next most popular imported models were the Mercedes-Benz C-class and A-class. This shows again how Tesla is competing in Asia with high cost German brands and is very cost competitive by comparison. The Model 3 has become the country's 4th bestselling model, the highest ever for an EV by a long way. This is illustrated below:
As my previous article detailed, Taiwan intends to phase out all ICE vehicle sales by 2040. Total vehicle sales last year (a depressed year) were 219,075 units. That is Tesla's addressable market.
This article has not dealt with sales potential in other countries in Asia, which I covered to a certain extent here. Singapore, Hong Kong and New Zealand will all contribute numbers. Europe has shown how small affluent countries can produce substantial sales figures for Tesla.
Customers in New Zealand have been waiting for new supplies for quite some, with the next shipment rumoured to be arriving this month. The usual Tesla supply constraints get worse in the right-hand drive markets such as Australia and New Zealand.
Projections do not include the world's 3rd largest car market Japan, the world's 5th largest car market India, or other substantial markets such as Indonesia and Thailand. These will likely come on-stream once the Shanghai facility is fully built out, in 2021 and 2022. Japan itself is the world's 4th largest EV market in terms of total vehicles supplied, as I detailed here. It seems Tesla does not have the spare product capacity for this RHD market or the personnel to concentrate more on Japan. Greatly increased sales could probably follow rapidly, but the company's resources are currently concentrated elsewhere.
The main downside to the possible numbers centre on Tesla being supply constrained. This may be accentuated if the U.S. factory has to close again because of the pandemic. This has already greatly delayed the production runs planned for the Model Y. Consumer demand everywhere looks very strong but could be adversely affected if the pandemic comes back with a strong second wave. Reports from California in the last few days of a surge in new cases make it quite likely that Fremont will be closed down again.
The main upside to the numbers lies in what potential increased product Tesla is able to manufacture and supply ex Shanghai. If the Model Y gets brought in ahead of time from either the USA or Shanghai, that would be an added bonus.
An optimistic but realistic forecast of 200,000 units based on the numbers so far and on just a few Model Y's coming into Asia this year would read:
China = 100,000 Model 3 and 20,000 Model Y.
South Korea = 25,000 units.
Australia = 25,000 units.
Other Asian countries = 30,000 units.
Total for Asia of 200,000. That would represent 40% of the Tesla target of 500,000 units for the year, a figure made uncertain by COVID-19.
The picture for 2021 looks very exciting indeed for Tesla in China and in Asia in general. There should be a big surge in sales as capacity comes on line and as the economies of the region recover. Across Asia, we are seeing an increase in EVs as a proportion of total car sales and a strong preference for Tesla over other models. Also, across the continent, Tesla is able to compete easily with the best-selling ICE brands such as Mercedes and BMW.
The growth in orders coming from Asia is another reason to be long-term bullish still on the stock price. Ron Baron's recent estimates for the stock price seem quite possible. This leaves aside other likely revenue-enhancing areas such as income from VPPs, FSD revenue opportunities, ride-hailing networks, the semi, robotaxis, and energy storage in general.
In the short term, car sales "per se" are the main factor. Long term, much else comes into play to justify current stock price levels. Tesla is a leader in the new reality of ESG investment.
Short term, there may be some pull-back on the stock price caused by the pandemic and the over-heated market in general. That would be a buying opportunity.
Barring unforeseen circumstances, it appears Asia will greatly increase as a proportion of total sales this year for Tesla. This impetus will increase still further next year as Shanghai production ramps up and Asian economies grow more rapidly than those in Europe.
This article was written by
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