Aug 13 2020 - Strong Drivers For Growth For Tesla Auto Business On 3 Continents

Summary

Strong demand for Tesla vehicles in the USA, in Europe, and in Asia.

Any constraints on sales earlier in 2020 were caused by supply problems and not by any lack of demand.

Increased manufacturing capacity and the increasing speed of the transition from ICE vehicles to EVs will see a further surge in sales going into 2021.

Tesla taking on large numbers of new employees around the world to meet growing demand.

The company's auto business has numerous strong drivers for growth in just about every one of its markets around the world.

Various writers and analysts who are bearish on Tesla (TSLA) have tried to paint a picture of soft demand for Tesla vehicles. Figures can be manipulated by cherry-picking individual monthly sales figures for specific countries. Added to this, short-term supply problems caused by factory closures from COVID-19 can be added to the mix. Sales in a particular country can oscillate up and down dependent upon when a specific vessel arrives at that country from the West Coast.

However, reality sets in if one takes a studied approach and looks at the hard numbers. Deliveries over a period of months show a very different picture. Supply ramp-ups in the U.S. and Chinese factories show a very different picture. The reality is that Tesla auto sales are booming in just about every country where they have a presence. This boom is set to continue throughout 2020 and accelerate into 2021. This will be driven by 3 factors:

* More factory capacity coming online.

* New models becoming available.

* The transition from ICE vehicles to EVs gathering pace all round the world.

Everywhere one looks for Tesla, there are very strong drivers for growth for their auto business.

The World

A general look worldwide shows how strong demand is for Tesla vehicles. This is illustrated below for plug-in sales worldwide:

12004341-15967727849152367.png

In the first 6 months of the year, the Model 3 sold about the same in volume terms as the No. 2, No. 3, No.4, No. 5, No. 6, and No. 7 models combined. It should be noted that these competitive products were generally lower cost than the Tesla models. In revenue terms, Tesla's lead is even greater. Such dominance by just one model has probably never been surpassed in the auto industry since the emergence of the Model T Ford. The appearance of the Model Y already in the list shows how Tesla's dominance should increase in the second half of the year.

I have seen the argument that the Model 3 is just one model and that other companies are outperforming Tesla when taking into account the full product range. This argument is also false as figures released by manufacturers for total EV sales from the first half of 2020 show, illustrated below:12004341-15967733378416452.png

Source: electrek

Tesla's range of EVs sold was more than the combined EV sales of Renault (OTC:RNSDF), Nissan (OTCPK:NSANY), Volkswagen (OTCPK:VLKAF), and BYD (OTCPK:BYDDF).

Elon Musk reiterated at the end of July that supply was still not keeping up with demand. This demand had held up well despite the pandemic and the closure of many retail outlets. Demand later in 2020 is likely to be boosted further by the new Model Y LR RWD, the Model Y 7-seater, and the Model S Plaid. These are further strong drivers of growth for Tesla.

The COVID-19 has set back both world demand and auto production. However, Tesla's ambitious target to deliver 500,000 vehicles in 2020 remains realisable. This would represent a 36% increase compared with the 367,500 vehicles sold in 2019. That had been about a 50% increase on 2018. Market share for Tesla will undoubtedly continue to increase in 2020, a year where total car sales everywhere are in decline due to the pandemic.

Piper Sandler recently predicted Tesla would sell 487,000 cars this year and that soaring unmet demand would enable them to hit a figure of 4 million by 2025 as new production comes on-stream. That seems cautious if anything.

North America

The U.S. market has not been easy this year with the factory closure because of the pandemic and a hostile regulatory environment from the Trump administration. The country has been worse hit than almost any other by the pandemic and this has caused a collapse in auto sales.

Up-to-dated sales figures are hard to verify. Many brands do not publish their figures in the USA, including Tesla.

In the first quarter of the year, the Model 3 was estimated at sales of 27,700 units. That made it the 8th best-selling car in the country and, by far, the best-selling EV. It was probably followed by the Chevy "Bolt" with a somewhat paltry 6,000 units or so. The Model X is calculated just behind the "Bolt" in 3rd place with 5,500 units and the Model S with 3,700 units. This shows how the Model X and S continue to sell well despite some claims to the contrary by some.

One estimate of sales for the first half of the year put deliveries at 39,000 units. This would make Tesla's Model 3 by far the largest supplier in the "Small and Medium Luxury Car Sales Market" sector. BMW 3 series was second at 18,327 units.

One much followed (and historically quite accurate) observer has an analysis that would give the company in the USA this year:

225,945 total sales of which:

Model 3 = 91,811.

Model Y = 95,230.

Model S/X = 38,904.

China would be the second-largest market with 154,164 units. Total worldwide sales would be 510,108. This seems about right to me, with the USA remaining the largest market but with China catching up fast as production expands out of Shanghai.

Apart from new cars, Tesla models have been the used cars in most demand. This is not just for the Model 3 but the Model X and Model S as well.

China

Being the top-selling EV in the world's largest auto market and the home of EV manufacture is a stunning achievement. I detailed this here.

The figures below for the January-May period show the Tesla Model 3 having double the sales of its nearest competitor:

12004341-15967744096121764.png

The month of June saw a reported registration of 14,987 Model 3s in China. This was a new record month for the company in China. It equates to 23% of all EV sales in the country.

The good news continued into July. Figures just released by the Chinese Authorities show that Tesla Shanghai had production of 12,571 cars and sales in China of 11,014 cars in that month. The Model 3 had more sales than the combined sales of the second, third, and fourth best-selling EV cars. These were all, of course, lower-cost Chinese brands. The Model 3 was the best-selling EV model and Tesla was the best-selling EV brand.

It seems certain that Tesla's position as the best-selling EV brand in China will strengthen much further still once the Model Y goes on sale. That is another strong driver for growth for the company.

The month also showed the increasing traction of EVs in the country. Auto sales, in general, are down and it is expected that total car sales will fall about 10% this year. Year-on-year sales of EVs increased by 19.3% in July. We keep hearing from Tesla bears that EVs are "niche" products. The facts increasingly show this is not the case.

Tesla's position in China is quite extraordinary when you consider that the world's largest auto market is the home of most of the world's largest EV manufacturers. In addition, the Shanghai factory has only just got up and running. It supplies only part of the range sold in China. The balance has to come in inefficiently all the way from California. As the Shanghai factory ramps up further and prices can be reduced, sales are expected to rise sharply. In August, the company was hiring for a large number of additional factory workers and also designers.

When the Model Y starts coming out of the Shanghai factory, it seems certain that its sales will outpace those of the Model 3. Crossovers are more popular than sedans in the country. This is another strong driver of growth for Tesla.

Another indication of future growth is the first V3 Supercharger Tesla has just opened in Beijing. The city of 5.9 million vehicles plans to halt the sale of all fossil fuel driven cars by 2030. Other V3 Superchargers are due to be set up in various Chinese cities this year and next.

Yet, another indication of future growth in China for Tesla is the support in the country for the Robotaxi concept. This will likely become a reality much sooner in China than elsewhere. China's top IT giants are variously closely concentrated on the concept and in actual trials. For instance, Didi Chuxing expects to have 1 million autonomous vehicles on the roads of China by 2030. This underlines the revenue potential for Tesla in autonomous vehicles and is another strong driver for growth for the company.

Analysis of SEC filings shows that Shanghai contributed 25% of company revenues in Q2. Tesla bears have claimed that the Shanghai plant would revert to the Chinese government after a very short while. In reality, the company recently signed a 50-year lease on the site.

South Korea

My article in May detailed the extraordinary market penetration the Model 3 had made against entrenched local manufacturer brands Hyundai (OTCPK:HYMTF) and Kia in South Korea. The Model 3 is far and away the best-selling EV in the country ahead of the Hyundai "Kona" and the Kia "Niro". This is despite the fact those are locally manufactured local brands at far lower sales prices than the Model 3. Hyundai has pledged to come out with three new EV models in 2021 under their "Ioniq" brand.

Tesla's position in South Korea is so strong that it is being reported that the Korean Government, under pressure from the chastened local manufacturers, will raise the tax rebate threshold to above the Model 3 sales price. It is understood that 43% of all government incentives for EVs this year have been enjoyed by Tesla. This is unlikely to be too much of a threat to Tesla sales. The company could bring in lower manufacturing cost Model 3s from Shanghai. Additionally, they could sell at a lower sticker price with increased mileage updates to be added at an increase to the base price.

In the first 3 months of the year, the Model 3 had enjoyed 45% of the EV market with sales of 3,949 vehicles. In Q2, a further 4,000 Model 3s were delivered and sold. Tesla dethroned Mercedes and BMW as the best-selling imported car brand of any type. Tesla's sales rose 1500% in the first half of 2020 against the first half of 2019, from a low base.

According to the Korea Automobile Manufacturers Association, the total number of EVs sold in the country in the first 6 months was 22,267.

June saw the highest monthly number yet for Model 3 sales in the country. There is said to be a backlog of 4,000 to 5,000 orders which will be met when the next vessel arrives in September. So, a figure of 12,000 to 13,000 Model 3s in the first 9 months of the year seems a likely number, despite the supply constraints to the market. This is hardly the bear's agenda of declining demand in 2020.

The country is pursuing a very environmentally-friendly policy and Tesla will benefit greatly. Currently, 64% of public sector vehicles are diesel and these will be phased out by 2025. The city of Seoul is to purchase 700 electric taxis from a list of approved manufacturers that includes Tesla.

Australia

Tesla has an extraordinarily high EV market share in Australia. Sales growth should continue to rise rapidly in a country with a high proportion of residences with solar panels. This will increasingly benefit Tesla and accentuate their vertical integration advantages. Already energy companies in Australia are offering lower tariffs for owners of EVs.

2019 saw the EV market just start to take off from a very low base. There were only 5875 full electric and plug-in hybrid vehicles sold. About half of these, that is 2950 vehicles, were from Tesla. The Mitsubishi "Outlander" was the second most popular vehicle. The new buzz around Tesla extended to a new "TeslaTaxi" service whereby Tesla owners can carpool.

2020 has seen an explosion of sales and an explosion of demand for Tesla cars. My previous article detailed this and the company probably has about 80% of the Australian EV market this year. This is yet another strong growth driver for Tesla.

Elsewhere in Asia

My article here detailed the resounding successes Tesla was having in those Asian countries where it has a presence.

As my previous article detailed, Tesla has sound business and strong growth potential in various other Asian countries. The picture looks especially bright in Taiwan, where it has become the first EV to number in the top ten best-selling autos.

Hong Kong remains a strong market for the company. Reports on social media indicate a large quantity of mixed Model 3, Model S, and Model X arriving in Hong Kong shortly from the West Coast. When Shanghai is able to produce enough cars to meet demand from Mainland China, this will provide great benefit to Hong Kong sales. The territory contains the continent's largest charging facility.

New Zealand is a fast-growing market. A fresh drive for business is being opened up in affluent Singapore. Other countries in Asia await Tesla's entrance into their markets.

Japan remains the one disappointing market for Tesla in Asia. The availability now of the smaller Model 3, more suited to Japanese tastes, will be an interesting test of whether Tesla can have a strong future in that country. It is by far the largest imported EV in Japan but numbers are low in a country where the Nissan "Leaf" dominates.

Europe

My article here detailed the huge potential of the German factory and the enthusiasm for EVs from government bodies around the continent. This is in marked contrast to the USA.

Figures for the first 6 months of the year show the success Tesla has had around the continent, illustrated below:

12004341-1596773874811965.png

Despite the U.S. factory shutdown and the problem of shipping cars from the West Coast to individual European countries, Tesla's Model 3 was still the second best-selling model in Europe based on number of units. Because of the far lower price of the Renault Zoe, the Model 3 would have been far and away the highest revenue EV in Europe.

Month by month figures have to be viewed with caution but the U.K. and the Netherlands continued to lead Model 3 sales in June. Interestingly, sales were high in Norway, a small country that Tesla bears seem fixated on as showing Tesla's world market is collapsing. Reports on social media indicate a lot of Norwegians awaiting the first Model Y deliveries, but these are yet to be confirmed.

June also saw the total market share of EVs in Europe reaching 8.2%. This compares to 3.6% in June 2019. Many see 10% as being a crucial number when the switch from ICE to EVs gathers unstoppable momentum. Consumers will hold back from purchasing ICE vehicles the more they see others regarding EVs as preferable. Second-hand ICE vehicles would lose their resale value rapidly. The 10% figure might be achieved continent-wide in the next few months. The arrival of the Volkswagen ID.3 in September is expected to give a strong boost to EV numbers. The only factor that might slow down EV growth in the future might be a lack of battery supply.

Figures, so far, for this year seem to be the harbinger of things to come. In Norway, in the first 7 months of the year, EVs took a market share of 68%, up from 56% in the whole of last year. In Portugal, EVs took a 12% market share in the first half of the year. In the U.K., EVs took a 7.7% market share in the first half of the year. This coincides with a collapse in diesel sales.

In Sweden, EV market share is running at over 20%. The picture is the same in Italy where BEV sales are expanding rapidly as those of petrol and diesel cars decline. In France, EV market share is rising rapidly and is just below 10% so far this year. In the Netherlands, the EV market share is 13% for the first 6 months, over double that of last year. Austria and Switzerland are both showing rapid EV growth though I have not seen figures for the full first 6 months of the year as yet.

In all these countries, the Tesla Model 3 is either the No. 1 or No. 2 best-selling BEV. In many countries, the Model S and Model X continue to sell well. For instance, in Switzerland, both models are in the top ten of the most popular EVs. Tesla was running at a 16% EV market share in Switzerland.

Europe is a strong growth driver for Tesla as the continent's consumers switch rapidly from ICE vehicles to EVs. When full production is available from the factory in Germany, the company's position in Europe can only strengthen still further. The manufacturing and transportation costs will be substantially lower for Tesla. Taxes will be lower for the EU manufactured products. This will allow Tesla to lower prices substantially if necessary. Additionally, the Model Y will be available from the Berlin facility. These factors represent strong growth drivers.

Conclusion

The figures show the undeniable strong growth drivers creating demand for Tesla vehicles throughout the world. The numbers do not lie.

Comments by Elon Musk in July show the company's plans are firmly anchored on this demand continuing to rise strongly. He expects employee headcount to rise from 48,000 at the end of 2019 to 60,000 at the end of this year. Apart from ramping up factory production employee numbers, Tesla is currently creating new sales and marketing positions and offices in many countries. These include in the USA, in France, in Singapore, in Canada, and in China. Across China, new offices are opening up to meet the demand for Tesla's cars.

These expansions in the car business do not even take into account the huge potential for other products. These include the Tesla truck, the Tesla Semi, and for energy storage. They all have a separate and very strong growth path themselves and the truck and Semi have strong forward orders.

The new Tesla car products will come on-stream as factory capacity increases on three continents for the remainder of this year and throughout 2021. Numerous countries are showing that the switch from ICE vehicles to EVs is irrevocable. Tesla will be at the centre of this huge increase in demand for EVs in general and for Tesla's brand in particular. The drivers for growth are many and are solid.

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