Tesla’s China-made cars qualify for subsidies
Tesla Inc.’s made-in-china sedans qualified for subsidies in the country, a potential boon for Elon Musk’s electric-car maker as it prepares to start selling locally built models in the world’s biggest market.
The company’s Model 3 sedan was included in a list of qualified models published by the Ministry of Industry and Information Technology on Friday. That means buyers will get a subsidy of as much as about 25,000 yuan (US$3,550) from the government. Tesla said in October the vehicles will be priced from about US$50,000 in China.
The company has said it’s planning to start delivering made-inchina Model 3 cars before late January as it nears the start of mass production at its new Shanghai plant, its first outside the U.S.
A Tesla representative in China also confirmed the company’s locally built vehicles have been approved for subsidies. While the government has been scaling back electric-vehicle handouts, certain support measures still exist as the country seeks to move toward cleaner energy and reduce reliance on imported oil.
The China plant will be a crucial test for Musk as the chief executive officer seeks to prove the carmaker can sustain profitability. The Shanghai Gigafactory, which broke ground in January, will initially build Model 3 sedans that will compete with electric cars from local contenders such as NIO Inc. and Xpeng Motors, as well as global manufacturers including BMW AG and Daimler AG.
On Thursday, Morgan Stanley analyst Adam Jonas wrote in a note to clients that Tesla Inc. shares may rise to as much as US$500 if its Cybertruck becomes a success and sales in China pick up pace,
The analyst raised his most optimistic scenario to US$500 from US$440 per share, saying it reflected US$20 from the new pickup truck that was unveiled on Nov. 21 and US$40 from incremental volume and profit in China.
Jonas assumed the company will be able to sell 100,000 Cybertrucks by the end of 2024 at an average price of US$50,000 and EBITDA margins of 20 per cent.
Since Elon Musk has said on Twitter that the truck currently has 250,000 pre-orders, Jonas’s assumption implies that roughly 40 per cent of those would translate to an actual sale by 2024. “We believe this is a fairly optimistic assumption, given that a pre-order only requires a $100 refundable deposit,” Jonas wrote. The analyst’s base case assumption does not include the Cybertruck.
For China, Morgan Stanley assumed 200,000 Tesla units in incremental volume, with revenue of US$40,000 per unit.
However, even with the newfound optimism, Jonas maintained his 12-month, US$250 price target and hold-equivalent rating on the stock, which assumes 24-per-cent downside from the electric-vehicle maker’s Thursday closing price in New York. His caution is derived from the perception that in the longer term, Tesla could be perceived by the market as a traditional automaker. “We are prepared for a potential surge in sentiment through first half of 2020, but question the sustainability,” he added.