Tesla Is Exporting Cars From China. Why That’s Good for the Stock.
September 11, 2020
is planning to export vehicles from China to Europe, according to multiple reports. That is good news for margins and signals that electric vehicle demand continues to recover from pandemic lows.
Tesla’s (ticker: TSLA) Shanghai manufacturing operation opened around the end of 2019. It was the company’s second full-vehicle assembly facility, after Fremont, California, and has helped boost automotive gross profit margins for the EV pioneer. Tesla didn’t immediately respond to a request for comment.
Gross profit margins are affected by many things including battery costs, vehicle pricing and shipping charges. Part of the margin improvement is linked to producing cars in the markets where they are sold. “Localized production in China and in Europe will bring the costs down, making our products even more competitive over time,” said CEO Elon Musk on the company’s first-quarter earnings conference call. That was the first quarterly results reported by the company with the Shanghai plant up and running.
But production costs are lower in China than in the U.S. “The cost of vehicles produced in Shanghai in [the first quarter] is already lower than the cost to produce the Model 3 in Fremont,” said CFO Zach Kirkhorn on the same conference call. “And there’s still significant opportunity left to take cost out.”
It isn’t clear how many cars are expected to be exported and for how long. Tesla is building another assembly plant in Berlin, Germany.
Presently, Tesla’s Fremont, California, plant can manufacture about 500,000 vehicles a year. The Chinese facility can manufacture about 200,000 and is being expanded. Tesla’s Berlin and Austin, Texas, facilities are coming. Berlin will build Model 3 and Y vehicles. Austin will manufacture the Cybertruck. Eventually, Tesla will have to make a decision where its semi-truck and new roadster will be made.
The exports might be needed to satisfy rebounding demand. In Western Europe, light vehicle sales bottomed, down about 80% year over year in April. Sales are slowly improving and were down about 27% year over year in June, the most recent month when aggregated data was available.
In America, light vehicle sales bottomed in April as well, down about 50% year over year. Sales have recovered, but still fell about 10% year over year in August.
Chinese auto sales, meanwhile, are growing again year over year. Passenger vehicle sales bottomed out in February, down more than 80% year over year. Sales in August hit more than 1.7 million vehicles, up about 6% compared with 2019.
Tesla shares were up 0.8% in recent trading. Tesla stock is up about 340% year to date, crushing comparable returns of the
Dow Jones Industrial Average.
Wall Street, for the most part, has missed the rally. Fewer than one in five analysts rate shares the equivalent of Buy. The average analyst Buy-rating ratio for stocks in the Dow is about 58%.
Looking ahead, the next big event for analysts and investors will be Tesla’s battery technology day on Sept. 22. Investors will be focused on four areas: battery cost, reliability, and capacity, as well as any new technology that can disrupt or displace today’s existing lithium-ion architectures.
“Musk & Co. are slated to announce a number of new potential game-changing battery developments at this event,” wrote Wedbush analyst Dan Ives in a Thursday research report. “Which has become incrementally more important as competition in the EV space continues to ramp both domestically and internationally.”