Tesla, Inc., the world's largest maker of electric vehicles (EVs), on Tuesday delivered the first Model 3 sedans assembled in China to Chinese buyers but this historic event masks serious challenges Tesla will have to surmount this year.
Tesla has now begun assembling Tesla Model 3s at its new Shanghai Gigafactory, which opened for business less than a year after its groundbreaking in January 2019. The first 15 Model 3s assembled at Giga Shanghai were delivered to Tesla employees, on December 30, fulfilling a promise made by CEO Elon Musk the first Giga Shanghai EVs will be delivered to customers before the end of 2019.
Giga Shanghai is expected to produce more than 3,000 Model 3s per week at full tilt. It will also assemble the new Tesla Model Y electric SUV, probably starting this year. This e-SUV will start being delivered to U.S. customers in the summer.
China's once promising market for new electric vehicles (NEVs), however, has changed significantly since Tesla announced its decision to build Giga Shanghai in 2018. The generous government incentives that led to a boom in NEV sales and prompted the establishment of new NEV startups is now drying-up. China has begun slashing its incentives for NEVs. As a consequence, sales of NRVs plummeted 43.7% in November, according to the China Association of Automobile Manufacturers (CAAM).
Despite this massive headwind, China's NEV sector looks to Tesla to reinvigorate sales of NEVs. Owning a Tesla is still a mark of prestige among Chinese car buyers.
"It will still be viewed as more premium purchase and you're paying ... more for the brand and that foreign vehicle cache," said David Whiston, senior equity analyst at Morningstar, to CNBC on Tuesday
There is, however, good news for Tesla and Chinese NEV firms for this year. NEV sales in China are forecast to rebound this year, said BloombergNEF research. The company predicts sales of 912,000 EVs in the first nine months of 2020, a 13% year-on-year increase. The forecast jump in sales takes into account Beijing suspending planned subsidy cuts to reinvigorate the steadily slumping NEV market.
Market and industry research firm Automotive Foresight (Shanghai) Co. Ltd. forecasts Tesla will be able to deliver 100,000 to 150,000 Model 3s this year in China.
"Tesla's positioning is unique, not much direct local competition so far. If there is no serious quality issue ... Tesla has no problem to hit the target in 2020 in China," said Yu Zhang, managing director at Automotive Foresight.
