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Is Tesla facing its DeLorean Moment in China?

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Back in late 2019, the first Chinese-made Tesla Model 3 was produced in Tesla’s new Shanghai Gigafactory. It took just 168 working days from attaining permits to opening production in the new plant.

The initial plans were to make 1,000 cars a week in the Shanghai Gigafactory. Just last month Tesla sold 25,845 locally made vehicles in China. It just happened to be a drop of 27% from March.

Back in 2019, commentators were surprised at how little time it took for the regulatory process to get approved by the Chinese government. While this week the leadership team at Tesla are more concerned about U.S.-China trade tensions. At least most of them.

Things took a dramatic turn for the worse in April when Tesla came under attack at the Auto Shanghai expo. An unhappy customer alleged that the brakes on her family’s Model 3 sedan were faulty and had caused a crash. Tesla’s representatives could have handled the situation better, which ultimately ended in the customer being detained. A high-level Communist Party legal commission then said Tesla “has to face up to the torment of its Chinese customers.”

Shanghai GigaFactory & Tesla’s Share Price

When Tesla went into China, it was a big deal. At the time the share price was hitting new highs of just $80. Today the price is $600. It was over $800 for most of January and February this year. However, the stock price has not shown much sign of returning to the highs it reached earlier this year. Even with all the endorsements it receives from investors like Cathie Wood, investors all over the world have seen their holdings in Tesla slump.

CNBC reported that Tesla’s China sales were $2.98 billion in 2019, 12% of the $24.58 billion total. In 2020 China sales rose to $6.66 billion, 21% of the $31.54 billion total. The 27% drop in sales of Tesla vehicles in China we saw last month, precipitated a strong correction in the share price.

And even thought times are difficult, it is hard to imagine Tesla exiting the Chinese market.

There are other elements of the puzzle to consider. Tesla has a large supply chain that supports the GigaFactory in Shanghai. The Mayor of Shanghai has been seen together with Elon Musk regularly, showing his support for the massive investment that Tesla has made. Tesla has invested, and the matter of some Chinese banks who also invested:

Even with the pandemic in full flow throughout 2020, Chinese customers flocked to Tesla dealerships across the country. The GigaFactory has been a huge part of Tesla’s success in China. The banks are hoping for excellent returns.

What is a Tesla ‘worth’ in China?

The electric vehicle market in China is the largest in the world, and Tesla needs to be competitive if it is to succeed there. But, before local production started in 2019, an $80,000 Model S from the US was selling for around $120,000 in China. Not very competitive at all.  

Now, Chinese customers can enjoy a government subsidy when they buy their new Tesla 3s. Prices of the 3s were reported to be as low as 271,550 yuan ($38,451).  For those of a more refined taste, the Tesla Model Y’s Long Range Version is now selling for 347,900 yuan ($53,350). It’s also likely you’ll have some further government incentives when you purchase either of them.

This all comes at a cost. During the pandemic, Bloomberg reported how thousands of laborers were back on the assembly line, many of them brought in on government-provided buses from dormitories secured by officials to keep them from ‘mingling’. All of them were provided with masks, supported by local bureaucrats who’d assumed control of protective gear supplies.

Since 2019, Elon Musk has gained permits, and built a GigaFactory in Shanghai within 168 days. He has received generous government support, and the support of Chinese banks. While in the background the U.S.-China trade tensions continue to dominate headlines. This isn’t the first time a situation like this has occurred in automotive history.

DeLorean and Tesla

A few years ago, Alec Baldwin, the famous actor, told Top Gear how “He’s [John DeLorean] like Musk and other people who want to form their own company, and do something bold.”

Comparisons have been drawn between DeLorean and Tesla cars for at least the last two years. In 2019, the doors of Tesla’s Model X were compared to the DeLorean in an engaging review by Influx.

In 1981, a DeLorean was selling for $25,000, placing it in a similar bracket to many of the Tesla models today. It was the brainchild of one of the most influential automotive figures of the time, John DeLorean, whom Alec Baldwin so excellently described.

DeLorean rose to the top of General Motors in record time before leaving to work on his dream car. He then gained support from the British government and opened a factory in Belfast almost as quickly as Musk did in China. DeLorean and Musk both received generous support from the governments of Britain and China respectively. Both entrepreneurs were / are responsible for substantial operations in jurisdictions facing tension, namely Belfast and Shanghai.

Margaret Thatcher, as the Prime Minister of the United Kingdom, had a profound impact on DeLorean’s stainless steel dream car which went into liquidation in 1982. Elon Musk is more savvy than that, isn’t he?

Tesla’s CyberTruck

DeLorean debuted in 1981 as a stainless-steel car. This week we saw the stainless-steel Cybertruck take to the streets of New York City for the first time:   

When Musk famously broke the window of the Cybertruck in late 2019, it was the first time the world had seen Tesla’s latest project. It was also only a few weeks after the Shanghai GigaFactory was built.  

Similarly to DeLorean’s famous sports car from 1981, the Cybertruck is built with an exterior shell composed of stainless-steel. In fact, the New York Times reported back in 1979, how DeLorean kept photos of a 1936 stainless-steel Ford that was still in pristine condition after three engines and 200,000 miles, in his office. One wonders if Musk might have drawn the inspiration for his Cybertruck from the same source.

As of last April, there were over 600,000 orders for Tesla’s latest concept. Whilst delivery is promised for 2022, there may actually be a few delivered by the end of 2021.

Tesla sold 500,000 cars in total in 2020, showing how big the impact the Cybertruck could make on global sales. In Quarter 1 2021 184,800 Tesla cars were delivered to customers globally, while Musk is rumoured to hope for sales of 1,000,000 by the end of the year.

The question is: Will it be a big hit in China too?

In Dogecoin We Trust

While Tesla’s share price continues to remain relatively low, and orders slumped in China in April. What has Musk been doing?

The new Dogecoin Song might seem to be a strange past-time to be involved with for a global influencer like Musk. It’s probably fair to call Musk’s recent infatuation with Dogecoin ‘eccentric’. Eccentric in a way that might better describe Dr. Emmett Brown from the Back to the Future films.

To exacerbate matters, cryptocurrencies are not popular with the Chinese government, who are creating their own cryptocurrency: the Digital Yuan. If Elon Musk could tweet a bit more about China’s new cryptocurrency then about Dogecoin, investors might see Tesla’s stock price rise again. However, it does appear that Musk wants to take Dogecoin to the Moon more than he wants to sell 1,000,000 vehicles in 2021. For now.

While Musk puts his faith in Dogecoin getting him to the Moon, other U.S. companies will be looking at the downturn in Tesla’s fortunes in mainland China. Tesla may well be a pre-cursor of things to come for large U.S. companies looking hungrily at the Chinese market.

Author: Andy Samu

#GigaFactory #Dogecoin #DeLorean #ElonMusk #Tesla #China #DigitalYuan #StainlessSteel