As Elon Musk struggles to contain his growing losses at Twitter, Tesla’s struggles in China are raising questions about the revenue and earnings stability of the EV making giant.
While Musk has been diverted at Twitter since April when he first revealed his bid and then was forced to pay $US44 billion in cash for the social media platform, Tesla seems to have been drifting.
And so has the share price – down 5.75% last week after a 2.75% rise in trading on Friday but the loss for the last three months is a nasty 34% and most of that can be blamed on the bad publicity over the Twitter takeover debacle.
Now there are signs the world’s biggest pure EV maker is sailing into rough waters, with the captain absent from the bridge.
And this is important for the renewables sector – especially lithium, cobalt, nickel and copper suppliers and battery makers. While demand won’t be hit in the medium to long term if Tesla loses its way, the short-term impact could be very worrying.
Signs of Tesla’s struggles have become more numerous in the past month.
The past month has seen two price cuts for its Shanghai-produced Model 3 and Model Y vehicles sold into China.
The cuts were not explained by Tesla and most reports said it was in response to the soaring sales of Chinese rivals, led by BYD.
Then Reuters reported that around 200 staff from the Shanghai factory would be heading to the US to help meet labour shortages at the plants in California and Texas. it was an odd story, not really denied.
As well, China’s October car sales figures revealed a slide in deliveries from Tesla’s Shanghai plant to 71,704 China-made cars in October, (including 54,504 for export)’
That was down from 83,135 in September (including 5,522 for export). This means that Tesla China delivered 77,613 vehicles to local consumers in September, the second highest on record behind June’s 77,938 vehicles.
Tesla usually exports more vehicles from the Shanghai plant to overseas markets including Europe and Australia at the beginning of each quarter while delivering more in China at the end.
(Those extra export vehicles in October didn’t come to Australia, as Tesla’s deliveries here slowed sharply to 1,109 in October from the record 5,969 in September.)
Then on Sunday it emerged that Tesla is now looking at exporting made-in-China electric cars to the US.
Reuters sees this reflecting Tesla’s growing cost advantage at its Shanghai plant and slower demand from Chinese consumers.
Furthermore, as part of the study, Tesla has been checking to see whether parts made by its locally-based suppliers are compliant with regulations in North America (indicating that Canada and Mexico could also be export destinations).
Reuters said if it all stacks up, Tesla wants to start exporting China-made Model Y and Model 3to the uS in 2023.
Tesla cut the starter prices for Model 3 and Model Y in China by as much as 9% in early October and then last week offered an additional rebate for buyers who take delivery this month and buy insurance from one of Tesla’s partners.
China-made cars face a 27.5% US tariff, while light trucks (pick ups) face a 25% tariff. China imposes a 15% tariff on imported vehicles.
Tesla’s Shanghai Gigafactory has the capacity to produce 1.1 million electric vehicles a year after an upgrade earlier this year, making it Tesla’s most productive manufacturing hub.
It makes Model 3 sedans and Model Y crossovers to sell in China and for export to markets including Europe, Australia and South East Asia.
Until recently, Tesla had been selling or shipping for export every vehicle it could produce in Shanghai, but sales have slowed and it is now facing rising inventory levels.
Reuters also reported that improving the cost competitiveness of Chinese sourced vehicles for Tesla has been the weaker yuan against the US dollar, lower raw material prices in China and the higher new-car prices in the United States
But Tesla will run headlong into the new rules on EVs and their components contained in the new Inflation Reduction Act passed by Congress in mid year.
The plan, if enacted, could create new complexity for U.S. buyers. Under the terms of a new electric-vehicle subsidy and production-incentive plan signed into law by U.S. President Joe Biden, the incentive available for an individual vehicle could vary depending on whether it was imported.
The act offers rebates of up to $US7,500 on EV purchases so long as key materials such as batteries and other metals are made of products either US sourced or from a country with a free trade agreement with the US, such as Australia, Canada, Mexico and Chile.
Musk is mercurial and he could say anything or make a decision that damages the outlook for renewable companies. Remember he has been moaning for a year or more about the high prices for key metals and materials such as lithium.
