Elon Musk, chief executive officer of Tesla Inc., center, reacts as Robin Ren, vice president of ... [+]
Tesla began delivering its China-made Model 3 sedans to the public to much fanfare and enthusiasm on Tuesday, but analysts say the company will soon have to face increased competition in a shrinking market.
The Palo Alto-based company marked the occasion–a major step in its global push—with a ceremony attended by its billionaire founder and CEO Elon Musk and government officials near Shanghai. Musk, who danced onto stage in a packed room, thanked the Chinese government for its support which allowed the Shanghai factory to begin rolling cars off its assembly lines just one year after breaking ground in January 2019. Although the company has publicly stated its ambition to open more plants across the globe, this is the first Tesla Gigafactory outside the United States.
With subsidies and tax breaks approved by the Chinese government, local-made Model 3s will sell for a starting price of 299,050 yuan ($42,919), compared with an imported price of 439,000 yuan. Analysts say the aggressive pricing strategy, coupled with Tesla’s brand appeal and more advanced technologies, will help it attract enough consumers to weather the recent slowdown of EV sales in China.
“So far consumer feedback has been very good,” says Yale Zhang, managing director of Shanghai-based consultancy Automotive Foresight.“Tesla is a leading brand and there are a lot of people in metropolises like Beijing and Shanghai who’d spend 300,000 yuan on its cars.”
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Last year, amid a slowing economy and trade tensions with the U.S., China’s auto sales registered a 17th straight month of decline as of November, with deliveries of new energy vehicles down for five months in a row, according to the latest data from the China Association of Automobile Manufacturers. To spur what it considers “real innovation,” China has also been phasing out the subsidies that had supported the electric-vehicle market’s rapid growth.
John Zeng, a Shanghai-based managing director of research firm LMC Automotive, estimates that Tesla can deliver 45,501 China-made Model 3s by the end of 2020, up from the 28,024 imported vehicles it sold in 2019. The company doesn’t disclose this figure in its financial filings, but has said the Shanghai plant is capable of producing 1,000 units per week, and aims to increase this further to 3,000 in the near future. Musk also announced that Tesla will make the lower-priced Model Y SUV in the Shanghai factory.
But the company also has work to do in the long run. Local and international EV manufacturers aren’t about to give ground easily, and at least a dozen new energy vehicle models have already been lined up to either launch new models or begin mass production this year. Among them are Chinese EV maker NIO’s EC6, BMW’s iX3 and Mercedes-Benz’s EQC, all of which have similar specs and pricing strategies as Tesla.
The Tesla Inc. Gigafactory stands illuminated at night in this aerial photograph taken in Shanghai, ... [+]
Analysts say Tesla’s reputation as an EV forerunner could fade as other manufacturers bring their vehicles to market. As competition in the sector increases, buying decisions may come down to customer service quality and attention to details like interior décor—including adapting materials used and color selection to local tastes.
“The company still needs to do a lot more to prove itself to the larger Chinese public,” says LMC Automotive’s Zeng. “Their technologies from battery management to miles range are definitely standing out, but their customer management and some design details aren’t meeting expectations.”
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To grab more of the market, Tesla may look to lower its prices further. To achieve that, the company aims to replace imported parts with China-produced ones, meaning it needs to work more closely with local suppliers. Automotive Foresight’s Zhang estimates that the price of China-produced Model 3s may even dip below 250,000 yuan at the beginning of next year, when more than 90% of components are sourced locally, up from the current 30%.
“The company will for sure lower prices further,” says Zhang, who estimates that Tesla may even sell as many as 100,000 Model 3s in China this year. “ They’d rather lower the price to get the market, and they want to achieve 100% local sourcing in China.”
