Next Frontier: China could be massive for Tesla

Posted on April 08, 2017 by Matt Pressman

The Wall Street Journal reports that, "Elon Musk’s futuristic ventures and risk-taking often draw mixed receptions in the U.S. In China, tech-industry leaders and investors hail him as a genius and visionary worth cheering on." That could be a a good thing as China may soon grow to become a massive part of Tesla's future growth. Last month, Bloomberg reported, "Tesla Inc.’s [NASDAQ: TSLA] revenue from China last year tripled to more than $1 billion, indicating better traction in the market Chief Executive Officer Elon Musk has predicted could eventually become the company’s biggest. China accounted for more than 15 percent of Tesla’s more than $7 billion of total revenue last year... [while] sales from the U.S. more than doubled to $4.2 billion."

 

Above: Tesla Model S in China (Image: Gas2)

Why is this market important for Tesla? Business Insider reports, "Like many US companies looking to grow, Tesla has its eyes on China. After some early issues with slow deliveries and lower-than-desired sales, the electric carmaker topped $1 billion in revenue in China... [yet] still, despite the gains, Tesla’s Chinese business remains far behind the money it makes in the US." Taking a look at the chart below, it's clear why "making moves in China is significant for Tesla’s future success. Not only has China sold more electric cars than Europe or the US over the past couple of years, it’s also grown at a much faster rate."

 

Above: Plug-in electric car sales in China, Europe, and the US (Business Insider via Statista)

Furthermore, China is "the world’s most populous country, and with tighter emission standards making it a friendlier place for cleaner cars like Tesla’s, China may have more room for future growth." And according to Investor's Business Daily, the recent "$1.8 billion purchase of stock in Tesla by Tencent Holdings helps both companies fill a hole in their business strategy in China, says an analysis by Edison Investment Research. Richard Windsor, Edison analyst, said Tencent's investment should bring Tesla 'badly needed capital as well as serving as a way to open doors in China.'"

 

Above: Tencent buys 5% of Tesla (Youtube: Cheddar)

"This fits nicely with Tesla's ambitions in China," Windsor wrote as Tencent "is the dominant ecosystem in China," with more than 850 million monthly active users. "Tesla gets a strong partner to help it fix the problems that it has had in terms of penetrating the Chinese market, while Tencent gets a potential route into both the automobile and autonomous-driving (markets) with a major global player," Windsor explains. That said, China could become a key part of Tesla's growth story in the coming years.

Posted in Elon Musk, Tesla, Tesla China, tesla news, TSLA


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