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China is Very Important to Tesla

July 25, 2014 | About:

Tesla Motors Inc. (NASDAQ:TSLA) designs, develops, manufactures and sells electric vehicles and advanced electric vehicle powertrain components. Tesla cars are manufactured in a far different manner than traditional vehicles: They have one standard battery platform on which they can mount varying motors and bodies. This swappable production strategy gives the company an advantage in achieving production efficiencies.

China is a Lucrative Market

Approximately 14,000 electric vehicles were purchased by motorists in China; this reflects a 30-percent gain from the previous year. Like most countries, China has ambitious goals to populate its highways with alternative energy vehicles and hopes to have 5 million environmentally friendly vehicles on the road in the next six years. Tesla is seeking to be a part of this growth curve. The affluent in China who are early adopters are the target market for Tesla's new initiative and CEO Elon Musk believes that the country could very well become the largest purchaser of their products within the next several years.

The company has a modest goal of selling 5,000 cars in China this year. China is on track to sell 11 million vehicles this year, according to the China Passenger Car Association. That would be up 17% from 2008, and a stunning 20 times the number of vehicles sold in China just a decade ago. This year China likely will overtake the USA, where expected sales are around 10 million units, and become the world's biggest car market for the first time.

China's auto sales smashed through the 20 million mark last year, growing nearly 14 percent and extending its lead as the world's biggest car market. Sales in China, the world's biggest auto market since 2009, surged 13.9 percent to 21.98 million vehicles last year, the China Association of Automobile Manufacturers (CAAM) said.

Initiatives to Sell to China

There is a huge demand for the American products by the affluent Chinese. TSLA is taking initiatives to sell to China. This is going to reap huge results. The company is all set to capture the Chinese market spectacular sales and huge waiting lists are on the cards. The company is also building a “big” network of battery-charging stations in China, including superchargers in Beijing and Shanghai. Local production in the world’s biggest auto market would allow Tesla to sell cars at cheaper prices by avoiding China’s 25 percent import tariff. While entering the country presents an opportunity for Tesla to sell as many vehicles, Musk will attempt to accomplish what the Chinese government has struggled to do: get people to buy electric cars.

Tesla has been taking orders since August and opened an 8,600-square-foot store in a Beijing shopping mall late last year to showcase its vehicles. Tesla aims to increase global sales 56 percent this year to 35,000 Model S cars. The company’s assembly plant in Fremont, Calif., is big enough to produce 500,000 vehicles a year. Chinese consumers pay about $115,000 for each Model S vehicle.

To End

China's huge auto market is critically important to foreign companies, which have looked to its vast potential to take up the slack from flagging sales in Europe, where French car sales hit a 15-year low in 2013 and German car sales also fell. China had set a target of selling over 5 million electric cars by 2020, which would account for about one-seventh of all vehicle sales in the country if realised. Foreign brands have an unusually good reputation in China, since people automatically assume they are of higher quality than domestic products. And the automobile is an especially important status symbol in China.

Entering the vehicle market without the normal constraints and biases that bog down traditional manufacturers has helped this California-based company become a wild success in the car market. All these factors are building the foundation for the company's eventual mass-market affordable car. And each factor helps to secure Tesla's spot among the big automotive companies, and change the auto industry forever.

Meanwhile, the demand for Tesla’s cars remains strong on robust performances and impressive designs of its products. Model S ensures the least possibility of injury to passengers among all major car makes and models in the U.S. The car won a five-star vehicle safety rating from the National Highway Traffic Safety Administration, which is awarded to only 1% of the cars tested.

Tesla is poised for immense growth and the company is progressing. While the affluent are more careful with how they spend money as the Chinese economy slows, there is still massive wealth ready to spend on luxury goods. Tesla fits that bill perfectly.

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