China is a huge market for battery-electric vehicles, and a huge market for Tesla.
Killai Shen/Bloomberg
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China is ahead of the US in electric-vehicle adoption. For Chinese EV producers, it’s a double-edged sword. The market for their products is far larger than that of American EV producers, but the competition is fierce.
Now after years of development, the Chinese EV market is over-supplied. The current state of the Chinese EV market offers US investors a look at what could happen down the road – and what will impact market growth in the US
Tesla
(ticker: TSLA).
Roughly 4.7 million all-electric vehicles are expected to be produced in China in 2022, up from the roughly 2.6 million produced in 2021. Battery-electric vehicles account for about 17% of total car production in the country, up from about 10% a year earlier.
The US battery-electric vehicle market is a fraction of the size of China’s. About 810,000 all-battery electric vehicles are expected to be sold in the US in 2022, up from about 488,000 sold in 2021. Battery-EV sales accounted for about 6% of total light vehicle sales in the US last year.
A smaller US market hasn’t hurt Tesla at home, however. Elon Musk’s EV company captures around 65% of the market in 2022.
China is a different story. There are hundreds of EV models available at a wide range of prices. this past year,
Tesla
Sold about 440,000 EVs in China, capturing about 10% of the market.
Today, China’s EV market is still growing but at a slower pace. Battery-EV sales grew nearly 6% in the first two months of the year. That’s a problem for EV makers. They have a lot of potential and slow sales have prompted price cuts from many companies.
Tesla cut Chinese prices in January. Others followed.
Volkswagen
(VOW3. Germany) earlier cut the prices of its electric vehicles in China This week,
In this, Chinese auto analysts are also beginning to look like traditional car analysts, who follow pricing, inventory and production levels when evaluating auto manufacturers.
General Motors
(GM).
“Together we believe
snow
And NEV inventory eroding the stock of mid- and low-end priced products could lead to a potential margin blow for all auto brands,” wrote Citi analyst Jeff Chung in a recent research report. He believes That means auto makers will have to cut production and prices to relieve inventory glut. (ICE is short for Internal Combustion Engine. NEV is short for New Energy Vehicles).
sounds like bad news for
Tesla
,
It will definitely have an effect. Since Tesla’s January price cut, Wall Street 2023 earnings estimates have come down from about $5.50 per share to about $4 per share.
However, there has been a silver lining. Discounting and market volatility seem to be benefiting the low cost producers.
“The fight in China for EV market share is fierce and the competition is an MMA [mixed martial arts] The match between BYD, Tesla,
nio
,
XPeng
and others,” noted Wedbush analyst Dan Ives. Baron’s, “The price war is making it a tough market for those that can’t grow as fast as Xpeng.”
market share for Tesla and
BYD
(1211.Hong Kong) is trending up, averaging about 45% of the battery-EV market in recent months, up from about 30% during the same period a year ago.
joint part for
nio
(NIO),
XPeng
(XPEV) and
Lee Auto
(LI) is now down 10% in 2023, down from about 11% a year ago. NIO, XPeng and Li haven’t been consistently profitable yet. BYD and Tesla are.
The stir in the Chinese market is separating the EV wheat from the EV chaff.
The Chinese dynamic is one that American auto investors will have to deal with as EV capacity grows and EV models proliferate in the US. There were fewer than 20 all-electric car models for sale in the US in 2019. In 2022 there were more than 40. More are coming, including Tesla’s Cybertruck in 2023.
Tesla’s market share will fall in the US, but if the Chinese experience is any guide, Tesla will be a winner as long as it is a low-cost maker of EVs.
For now, Tesla is a cost leader. Its operating profit margin in 2022 was about 17%. operating profit margin at GM and
ford motor
(f) came at 9% and 7% respectively.
Tesla is up 0.2% in premarket trading on Friday.
S&P 500
And
Nasdaq Composite
Futures are down 0.4% and 0.1%, respectively.
Write to Al Root at [email protected]