China Market situation and outlook

[ev-enthusiast]

Further information about Elon Musk in China reported by 'New China':
China sales to catch up with U.S. in 5-6 years: Tesla's Musk
Some statements from the above mentioned article:

In the long term, we will probably see equal or higher sales in China than in the United States. That may take five or six years.

The company is in talks with officials at the national and provincial levels about potential joint ventures in China

Tesla has been beefing up its stores and supercharging networks in China, already installing 84 superchargers and 1,500 destination chargers

Official data showed that electric and hybrid electric cars outperformed their peers in September, registering 210- and 220- percent growth year-on-year both in output and sales respectively.

 

[electracity]

Tesla announced China Sales number in 2015

Elon Musk is visiting China now.
Q1: 797
Q2: 883
Q3: 1345
=======
2015 YTD: 3025

Good news or bad news. Good news is the >50% QoQ growth in Q3. Bad news is China only takes less than 10% of the total sales and it's still hard to reach 5K in 2015.

That is very encouraging.

Anyone know if they finally got on the approved list for EVs in Beijing?

 

[tftf]

Ok, Tesla reiterated that they want to open a factory in China.

Is Musk keeping track of all his "factory" announcements?

Here's a list:

Musk wants to open a battery plant in Germany:
http://bit.ly/1jYawpD

Musk wants to open a R&D center in the UK:
http://bit.ly/1jYawWy

Musk wants to open a car factory in Europe*:
http://bit.ly/1jYazl2

Musk wants to open a factory in Texas:
http://bit.ly/1jYawWz

*Their Netherlands thing only puts the wheels and battery packs together with the chassis

List compilation courtesy of Alberto Zaragoza

Getting back to China, I have trouble imagining where the cash-flow is coming from to build just one or two of these factories (since the Gigafactory will only be fully built out by 2020 and will require lots of additional funding to fully ramp, the money raised in early 2014 is already spent).

The China "factory" will likely just be an assembly (like in the Netherlands) to start with.

Well, maybe the new CFO (I didn't see an announcement yet on a new CFO...) can answer these questions.

 

[techmaven]

Ok, Tesla reiterated that they want to open a factory in China.

Is Musk keeping track of all his "factory" announcements?

I bet he is.

It makes sense to assemble battery packs for Europe in Europe, using Panasonic's output. R&D center in UK makes a lot of sense, there is a lot of racing and car development expertise there and they have previously worked with Lotus in the UK. This is not necessarily a large endeavor. They have already expanded the Tilburg facility and of course it makes sense to have at least three major car production facilities and three major battery production facilities, each for North America, Europe, and Asia. The question is always timing.

The China factory will likely just be an assembly as in the Netherlands to start with.

Would it not make sense to do whatever small part is necessary in order to avoid the 30% import tariff on a relatively inexpensive vehicle like the Model 3? It seems that an assembly plant like Tilburg would be capex friendly, especially since it will be co-owned by a Chinese firm. Even better would be a battery assembly plant so that the cells coming out of Osaka, Japan, don't need to go to California and then back to Asia.

 

[Krugerrand]

Getting back to China, I have trouble imagining where the cash-flow is coming from to build just one or two of these factories (since the Gigafactory will only be fully built out by 2020 and will require lots of funding to fully ramp).

You had trouble figuring out where the cash was going to come from for the Gigafactory in the first place, and yet come it did. No need to talk about how quickly the sucker is going up and that it'll be producing cells and batteries at least on time and quite likely ahead of time. No need to discuss that it's likely to be bigger than originally planned either.

The China factory will likely just be an assembly as in the Netherlands to start with.

It might start out that way, it might not. Neither here nor there, it'll take whatever form it needs to for Tesla to continue to expand and advance in that market.

Well, maybe the new CFO (I didn't see an announcement yet on a new CFO...) can answer these questions.

You are right, there has been no announcement of a new CFO. *shrug* I suspect that someone will ask the question at the next ER and it's quite possible Tesla answers as before: 'We're interviewing people and taking our time finding the right person'. As far as I'm concerned, Tesla should do it the way they want and in the manner they want.

 

[electracity]

Presumably Tesla doesn't want to seek a lot of additional capital until the Model 3 is proven. But to meet desired growth they seem to need the capital in advance of proving the model 3.

Producing 300,000 cars in China in the first part of the next decade seems reasonable. Charting the Capex needed to meet reasonable growth estimates would be interesting. Since the market cap of Tesla projects a much larger company, someone must have worked out how Tesla gets there.

 

[RobStark]

Is Musk keeping track of all his "factory" announcements?

AFAIK there are no announcements. There are quotes like the one below in Germany.

"I assume that Tesla will build in the long run a battery factory in Germany", the Tesla CEO Elon Musk said in a Spiegel interview."

http://www.spiegel.de/wirtschaft/un...-batteriefabrik-in-deutschland-a-1004441.html


Elon goes to various locations and speculates what may be or that this location makes sense for a future battery plant or auto manufacturing plant.


That is what big time industrialist seeking changes in law or seeking to keep an endangered status quo do.

Elon just gets more coverage and if media report his speculations as fact that is not Elon's fault.

 

[hobbes]

This goes a long way to explain Europe's numbers last quarter. The increase in Chinese deliveries nearly matches the decrease in Europe's numbers.

That was exactly my first thought, too. Good to hear!

 

[Johan]

Good point RobStark, I wanted to add that but forgot in the short term thread, in reply to TalesFromTheFuture and the "list of announcements " he referred to (a list compiled by no other than clueless notorious conspiracy theorists and TSLA short: Spanish school teacher Alberto Zaragosa Comendador):
These are in no way announcements of factories to be built. The best term I can come up with to describe these statements are speculative musings. For all I know two factories and one assembly center have ever been announced by Tesla, and they are all either operational (Fremont & Tilburg) or on schedule to become operational (Reno Gigafactory). So that 3 for 3, yes?

 

[maoing]

Beijing removed the lottery system for EVs, all Model S purchases qualified for free license plate. It'll help the slow ramp up of Tesla sales in China, not too optimistic though.

http://news.ifeng.com/a/20151025/45991307_0.shtml

As I said very early this year that Tesla will meet demand constraint issue in 2015 if China market can't catch up. I still remember many Tesla cheerleaders attacked me by quoting Elon Musk that "Tesla can meet guidance even with zero sales in China". What a joke and we'll see the truth in less than 2 weeks.

 

[JRP3]

The only joke is assuming Tesla is demand constrained and needs China when in fact they are still clearly production and delivery constrained. If Tesla misses guidance it will have nothing to do with China and nothing to do with demand.

 

[maoing]

Can't LoL! Tesla claimed 1k/week production rate in last November, in 2015 the model S production is at least (unlikely pessimistic) 50K. If you believe there is no demand issue, then you don't need to worry about guidance reduction and you should buy weekly calls toward ER, I wish you very best luck! If there is no need for China delivery to meet 50K model S guidance, then with China (>4K in 2015) in the picture, Tesla should be able to meet or close to 55K original guidance with Model S only. The number tells you the truth instead of your dream "still clearly production and delivery constrained".

Disclaimer: I don't want to waste time to argue on this topic. We'll see the answer in 10 days.

 

[Causalien]

Can't LoL! Tesla claimed 1k/week production rate in last November, in 2015 the model S production is at least (unlikely pessimistic) 50K. If you believe there is no demand issue, then you don't need to worry about guidance reduction and you should buy weekly calls toward ER, I wish you very best luck! If there is no need for China delivery to meet 50K model S guidance, then with China (>4K in 2015) in the picture, Tesla should be able to meet or close to 55K original guidance with Model S only. The number tells you the truth instead of your dream "still clearly production and delivery constrained".

I think Elon botched the China story by hiring the wrong person for the job. But he learned a lesson as he got scammed by over promise of the person he hired. First lesson of business in China. Everyone is trying to scam you. Hopefully the environment have changed a bit since I last did any business with China and this is a real case of someone incompetent.

 

[maoing]

For 2014, yes, Elon got scammed information. But Elon said meeting 55K guidance (assume 50K model S) without China in Feburary Q4 ER and China head had been changed.

I think Elon botched the China story by hiring the wrong person for the job. But he learned a lesson as he got scammed by over promise of the person he hired. First lesson of business in China. Everyone is trying to scam you. Hopefully the environment have changed a bit since I last did any business with China and this is a real case of someone incompetent.

 

[Causalien]

Not disputing it. We are all waiting to see if the demand story is true. With Model X not being able to contribute any number significantly this year. It's all up to the Model S story of being demand constrained.

 

[maoing]

That's fair. Elon needs to reiterate 50K at minimum to put demand constrained story in dust. If that happens, I'll buy back all my positions in AH. Otherwise, I'll just watch for more drop post ER because currently market only focused on Model X hiccups and still not quite sure about the demand constraint story.

Btw, if you read DaveT's most recent article, I basically said the similar thing about demand.

 

[RobStark]

Can't LoL! Tesla claimed 1k/week production rate in last November, in 2015 the model S production is at least (unlikely pessimistic) 50K.

Tesla reached production capacity of 1000/week in Q4 2014.

And reached 1000 Model S produced in some weeks.

But in order to reach 1000 vehicles produced on a consistent basis Tesla's most incompetent supplier must consistently supply enough parts for 1000 vehicles per week on a timely basis.

Tesla also needs no work place accidents, power supply disruptions, Acts of God(earthquakes)etc to interrupt production.

Some weeks Tesla produces 750 vehicles. That in no way means demand dropped 25% that week.That is just the reality of auto production. It is a very complex product with an extensive supply chain.

Tesla can cut bait with the most incompetent supplier but then it needs to start from scratch with a new supplier.

 

[hobbes]

Beijing removed the lottery system for EVs, all Model S purchases qualified for free license plate. It'll help the slow ramp up of Tesla sales in China, not too optimistic though.

Thanks for the info. It will help Tesla, remains to be seen by how much.

As I said very early this year that Tesla will meet demand constraint issue in 2015 if China market can't catch up. I still remember many Tesla cheerleaders attacked me by quoting Elon Musk that "Tesla can meet guidance even with zero sales in China". What a joke and we'll see the truth in less than 2 weeks.

How will you be able to tell by what Tesla sales are constrained? If they reduce guidance, it could be because of suppliers for X parts, could be because lack of demand. You could say they can just go produce the S on both lines, but to me it does make sense if they are just getting this line to run for the X, it would make it much harder producing other cars there at the same time. I think unless Tesla decides to give us much more detailed info, we can never tell for sure. In addition, if Tesla realized demand lookout was not so good, they wouldn´t build out production capability as agressively - would you call the result demand or production constrained? So it can even be hard to define. All we can only judge them by is the yoy growth I believe.

 

[JRP3]

Rob and hobbes have it exactly right, production rate can drop at various times because of a number of factors, and a miss on guidance simply cannot be blamed on demand unless Tesla comes out and says so, or unless we see other clear indicators, i.e. discounted cars and vastly shrinking wait times. We have seen neither. Bottom line, Tesla can miss guidance numbers and not be demand constrained in the least.

 

[electracity]

We see both a drop in price and short wait times.

Tesla having Mod S for december delivery is disappointing. I thought the Model X reveal would release more buyers "on the fence" between S and X. When Tesla is offering pay for leads to owners they are not production constrained.

Periods of less than expected demand should probably be expected.