Tesla has no new problem with China. A cheaper Model Y is a good thing.
has just started offering a cheaper version of its Model Y crossover vehicle in China. Falling prices could be a sign that there is a demand problem for the electric vehicle pioneer in China. This is probably not the case, however. And Wall Street sees price cuts from electric vehicle manufacturers as established reflections on industry demand and profit margins. Investors may want to look for a neutral party to set their expectations on what a cheaper Model Y means.
The new standard-range version of the Tesla (ticker: TSLA) Model Y is priced at 276,000 yuan, or about $ 42,600, and has a range of about 525 kilometers, or 328 miles, on a single charge. US investors should be aware that the Chinese authorities calculate the range per charge differently from the US authorities.
JP Morgan analyst Rebecca Wen covers Chinese automotive technology, but not Tesla itself. Wen represents a neutral party. She did notice the Model Y’s price drop, however, and commented on it in a research report on Thursday. She said the new price was competitive and pointed out that the new Model Y likely had a new lithium-ion iron phosphate battery. Tesla did not respond to a request for comment on pricing or the battery.
Wen writes that the Model Y is the best-selling model in China, excluding some smaller and cheaper EVs, and “with the [Model Y] lower price and, therefore, a larger addressable market, we believe there could be significant volume increases, ”she noted as the Chinese Model Tesla 3’s monthly sales volume increased from around 12,000 units per month to 18,000 units following the introduction of a lower range version. Model 3 equipped with iron phosphate batteries.
Iron phosphate batteries are cheaper and less powerful than high-end lithium-ion batteries. Chinese manufacturer of electric vehicles
(XPEV) was praised for offering a cheaper version of its cars by introducing the same type of battery in March.
Morgan Stanley analyst Tim Hsiao wrote that the XPeng battery decision was a smart strategic move, giving the automaker the option of lowering vehicle prices or the ability to offer more features for the same price. . In March, Hsaio valued buying XPeng shares and had a price target of $ 70. He is still pricing stocks at Buy today, but his price target has fallen to $ 57.
The cheaper batteries could reduce the cost of the XPeng vehicle by about $ 3,000 to $ 5,000, or about 10% off recent list prices which average around $ 40,000. The next version of the Chinese Y costs around $ 54,000.
GLJ Research analyst Gordon Johnson has a different take on the decision to cut prices, saying it hints at a demand problem. Johnson wrote on Thursday that he viewed Tesla’s cut as “a lever of desperation to try to stimulate demand in a market where it is seriously lagging behind.”
Tesla is expanding in China. It manufactured and sold more cars from its Shanghai plant in the second quarter than in the first quarter. But the company also exported much more of its Chinese production to Europe. Tesla’s shipments and market share in China fell in the second quarter.
However, it is difficult to call this a demand problem. Tesla, at this point in its history, has always sold whatever it can do. He never reduced his production because of the drop in demand. This happens with both traditional and mature automakers when sales fall. But Tesla serves the world from just two factories, one in Shanghai and the other in Fremont, California. The destination of Tesla’s production is one to guess.
Still, Tesla’s Chinese market share is a watchword for Tesla’s bulls and bears. And a cheaper Model Y should actually help, not hurt, its part.
Johnson is a reputable Tesla bear and is pricing the stock for Sale with a price target of $ 67.
Falling Model Y prices don’t have much of an impact on Tesla shares. Shares rose about 1.3% on Thursday, while the
Dow Jones Industrial Average
both fell almost 1%. Tesla stock is down 0.4% on Friday, while bot indices are up more than 1%. Not much has happened to Tesla stock according to recent Chinese news.
Write to Al Root at [email protected]