Oct 16 2020 - Major New Developments Racking Up For Tesla In Asia

Shanghai factory continues to expand production rapidly.

Consumer demand in China and elsewhere in Asia continues to rise sharply.

Tesla set to enter new markets in Asia.

Tesla looking at new investments around the continent.

The growing strength of Tesla (NASDAQ:TSLA) in Asia was detailed in my article in August. This is centered around the rapidly-expanding manufacturing operations in Shanghai. That article expounded on the fast-rising sales and tremendous market shares in China, South Korea, Taiwan, Hong Kong and Australia.

The company's ability to meet its very ambitious target of 500,000 auto sales this year will probably be determined by the further pace of sales and production in Asia in Q4.

Added to the buoyant sales numbers, recent initiatives by Tesla point to vital new investments and marketing developments around the region.

These positive developments are not evidence that Tesla will become somehow an "Asian company." Expansion in manufacturing and production are proceeding in North America and Europe as well. It's instead an indication of the way in which Tesla has a firm strategy to be a truly global company. Asia will play a pivotal role in this. Tesla has a strong foothold in China, the world's largest auto market, in both sales and manufacturing. This provides access to materials needed for the future of EV manufacturing and energy storage. Future growth will happen more rapidly here than elsewhere in the world.

Shanghai Production

My article in April emphasized the importance of Tesla being able to ramp up production in Shanghai to meet 2020 targets. September was a shortened month because of holidays. However it looks like Shanghai now has the capacity to produce 18,000 Model 3s per month, or 216,000 per annum. Model Ys may yet roll off the lines this year. In the US there's a 4-8 week lead-time for the Model Y "Long Range" and "Performance" versions, underscoring the strong demand. Production of the 7-seater Model Y is slated to commence in November.

Fremont has an annual capacity of 400,000 Model 3s and Model Ys and 90,000 S and X models. It has been installing equipment for a further 100,000 annual capacity. If this is in place, then the 181,000 vehicles needed for Q4 to attain 500,000 units is achievable. In Q3 the company manufactured a record 145,000 cars. In the first 9 months of the year the company made 318,750 deliveries. In contrast the total deliveries for 2019 were 367,656.

Figures from EVVolumes.com showed how dominant the Model 3 was all around the world in the first half of the year. This is illustrated below:

EVVolumes.com

As CleanTechnica detailed below, 2020 is continuing to be a boom year for Tesla despite COVID-19:

CleanTechnica

Tesla's BEV world market share was 27.8% in the first six months of the year. Renault-Nissan-Mitsubishi were far behind in second place at 10.2%.

One can only imagine what the sales would have been like in a normal year without both supply and demand being hit by COVID-19.

This demand makes the importance of ramping up production in Shanghai still more important. As the Autumn Festival holiday ends, the factory has transitioned to a third shift to meet the demand.

Model Y production was originally slated for first quarter 2021. There's much talk it could be rolling off the production lines in Shanghai this year. Meaningful revenue from the Model Y in China will only occur in 2021 though.

Elon Musk has recently stated that he intends to produce a car in Shanghai to sell at under US,000. This would be specifically for the Asian market. It is likely to come off the production lines within 3 years. A similar exercise is intended for the European market out of Berlin.

Tesla is moving closer to Chinese corporations in various ways. It now has a very close relationship with CATL, which is China's largest battery company. CATL is thought to supply about half of the EV batteries in the country. Tesla is generally considered to have a two- to three-year advantage in battery technology over their rivals. Their base in China should ensure this lead is not threatened.

Tesla have commenced battery recycling in China, for which some provinces are now offering tax incentives.

Tesla also is working closely with Chinese giant Tencent (OTC:OTCPK:TCEHY), as I detailed here. Tencent already has a stake of about 5% in Tesla. Tencent is much involved in AI for autonomous driving. China may well be where Tesla's ambitious autonomous plans first become reality.

China's Macro Advantage for Tesla

President Xi Jinping recently committed to China becoming carbon neutral before 2060. China is likely to become even more the center of EVs and of renewable energy than it already is. Half of the world's EVs are on Chinese roads. 98% of e-buses are on Chinese roads. 99% of electric two-wheelers are on Chinese roads. The country is capable of dominating in sectors such as 5G, AI, big data analysis and is putting these together in "smart city" packages. Already many such projects are being exported to countries overseas as part of the Belt & Road Initiative. Tesla's technological advantages in software and hardware and plans for robo-taxis and VTG charging fit perfectly into this scenario.

Parallel standards are starting to emerge between U.S. derived products and Chinese derived products. The U.S. government's concern about this is shown by their attempts to block off Huawei and TikTok. They recognize these are existential threats to previous domination by U.S. companies.

By 2025 the battery production of China will be double that of the rest of the world combined. Already the country has 73% of the world's lithium-ion battery production capacity. At a time when EV manufacturers are scrambling to secure battery supply, one can see why Tesla is so intent on China. As the world moves away from fossil fuels, this trend will strengthen China and weaken the US, the world's largest fossil fuel producer.

The secondary battery market is expected to grow strongly in tandem with this. A recent report predicted rapid revenue potential for Tesla (amongst others) in this field. The APAC region comprises 64% of world revenue in this field.

As "The Economist" has stressed, it's not just EVs and batteries that the country will dominate. The country mines 60% of the world's "rare earths." It refines over twice as much lithium as any other country. It refines eight times as much cobalt as any other country. It manufactures more than 70% of the world's solar modules. It produces half of the world's wind turbines. It already has 445GW of wind and solar capacity, 356 GW of hydropower capacity and 48 nuclear reactors. These advantages mean China could have a similar stranglehold on the future of world energy as OPEC used to have on oil. This may be an under-appreciated existential threat.

China Sales

The Model 3 is the best-selling EV in China. This is a remarkable achievement in the home of low-cost EV manufacture. It sells almost three times the number of its closest competitors, the GAC Aion S and the BYD New Qin EV. Official figures show that in August Tesla sold 11,811 cars, representing market share of 12.7%. This brought the total for the first eight months of the year to 68,579 cars. Unofficial figures for the 1st nine months of the year put market share at 13.3%.

As from Oct. 1 the Standard Range Plus with lower cost cobalt-free LFP (lithium ion phosphate) batteries from CATL has had its retail price reduced. This has reportedly led to a surge of customers and orders. Tesla displays at the auto shows in Beijing, Shanghai and Shenzen were seemingly overwhelmed during the September holidays. Time will tell how much this translates into sales in Q4. It seems to be happening already, as Tesla has been turning to volunteer helpers again as demand for deliveries out-strips company resources. It's no surprise that the company is currently advertising for new staff in 10 cities across the nation.

The price cut is expected to hit in particular the XiPeng Motors P7, widely seen as a Model 3 "knock-of.f" The products from Nio (NASDAQL:NIO) also may struggle in the new price environment. BYD Auto (OTC:OTCPK:BYDDF) also could be affected although its new "Han" model is seeing buoyant sales. The short-range Model 3 has had its price reduced by 8% and the long range by 10%. The long range model has seen sales rising faster than the short range since production got ramped up earlier in the year. The Model S has seen a price cut of 3%.

Normally the CATL batteries would have lesser range than the NMC ones they replaced. Technological improvements have however enabled the company to reduce the price but also quote a longer range. These look likely to replace the more expensive NCM (nickel cobalt manganese) batteries currently mainly used. This will give a further boost to Tesla's sales not just in China but around Asia. A localized supply chain also has helped greatly in Tesla's cost-reduction program.

China is the world's largest auto market. My earlier article detailed how China's importance will only grow. The government has targeted 20% of auto sales by 2025 to be EVs. That would comprise 4.8 million vehicles at present levels. This is Tesla's addressable market for China. Earlier this year Piper Sandler estimated Tesla's potential as being 650,000 cars in China. That would equate to about a 13% market share on the 2025 estimated figures. Tesla already is at this percentage point and should exceed it as the Model Y production in Shanghai ramps up.

My article here detailed the figures showing the vital importance of Asia to Tesla. In the city of Shanghai alone, Tesla has 54 Supercharger stations, 508 stalls and 14 stores. Shanghai represents the highest such penetration outside the US. EV sales in the country have started to rise in recent months after the COVID-19 induced slowdown in the first half of the year. For instance, August EV sales rose 26% year-on-year.

Asian countries have generally handled COVID-19 more effectively than the US and Europe. This means that the Asian share of the world auto market is likely to have increased still further in 2020.

The illustration from Statista for regional markets in 2019 shows the increasing importance of Asian auto sales:

Statista

South Korea, Australia, Thailand and Indonesia also are in the world's top 20 largest auto markets. Tesla can now start to supply such countries from Shanghai rather than the US, with all the advantages that provides.

An under-estimated potential for Tesla in China also rests in the energy storage business, if they can secure sufficient supply. China is building huge solar plants around the country. It's the world leader in solar generation. Earlier this year Tesla was advertising for solar and energy storage staff to be based out of its Shanghai office. The authorities realize that cars are on average parked 95% of the time. Using them to provide energy is an official target. It fits well with Tesla's plans for VTG energy storage use, for the concept that EVs are batteries on wheels.

Another likely boost from China could come from FSD (full self driving). This is at a more advanced stage than in the US. Indeed Nio is quite likely to have robo-taxis up and running first, on the back of their tie-up with Mobileye. Baidu (NASDAQ:BIDU) and their partners are major players. There already are some fixed route services up and running in the country. The country's 5G lead will help Chinese-based companies to be early players.

An interesting recent article on Seeking Alpha assessed the huge revenue implications for robo-taxis. Tesla's vehicles already have the hardware installed. They just need the software updates to attain Level 5 status from the current Level 4. The company has built its own chips and some independent reports reckon they are four years ahead of the competition.

Recent comments by Musk intimate that Tesla is now close to having the software to integrate with this FSD hardware. An FSD beta release is expected any day now. This has huge potential revenue implications. Tesla have the large fleet already on the ground. They have a substantial software advantage over the competition, primarily because of their vertical integration development. The Tesla model is that FSD would apply not just for robo-taxis but be applicable for all privately-owned Teslas as well. Ark Investment has calculated that the FSD market could be worth US trillion by 2029.

Hong Kong

Hong Kong always has been a strong market for Tesla. This is despite the incorrect bear refrain that you cannot sell EVs in high rise life cities. Nowhere is more based around high-rise city living than Hong Kong. The territory is home to the world's largest Tesla Supercharger station. About 60% of EVs on Hong Kong's roads are Teslas.

Latest figures for August show that the Model 3, with 912 units, was the largest-selling vehicle of any type, ICE or EV, that month.

South Korea

The Model 3 is by far the best-selling EV in South Korea. This is despite the local competition from the Hyundai Kona and Kia Niro. My previous articles have detailed this. Hyundai (OTCMKTS:OTCPK:HYMTF) just had a major problem with reports of fires in the "Kona" model, leading to worldwide recalls. The batteries are supplied by LG Chem (OTC:OTCPK:LGCLF). The exact causes of the problem have not yet been released.

The potential for Tesla is tremendous. In the first seven months of the year Tesla had 31% share of the BEV market, at 6,888 units. In August this year the Model 3 was the best-selling model of any car, ICE or EV.

The government recently announced they would invest US billion to raise the number of EVs on the road from the current 110,000 to 1.3 million by 2025. Model Ys have been seen in the country since August. Most likely this is for testing for local compliance.

Taiwan

My previous articles have detailed the positive reception to Tesla in Taiwan. As in South Korea it has become the fashionable car to own. An outdoor cinema club meeting of the Tesla Owners Club is illustrated below:

Tesla Owners Club Taiwan

In August Tesla sold 817 cars for the month. Of these, 685 were the Model 3. Indeed the Model 3 was the best-selling model of any passenger car in the country, ICE or EV. This year Tesla represented 97% of BEV sales in the country. Three new Supercharger locations are currently being installed.

The government has committed to phase out all petrol and diesel car sales by 2040. All government vehicles will be electric by 2030.

Indonesia

Reuters has reported that Tesla are discussing investing in Indonesia. There are various possibilities. The most likely is an investment in nickel production. It's vital to have sufficient quantity of this material for battery operations in Shanghai. LG Chem and CATL are both building battery factories in the country. Both are of course now suppliers to Tesla in Shanghai.

Tesla is also rumored to want to purchase a stake in LG Energy Solutions as it's floated off from its parent company. That company's battery business is reported to have grown more rapidly than that of either CATL or Panasonic (OTCPK:OTCPK:PCRFY) in the past year.

An investment in Indonesia also might help Tesla to get reduced import duties on its vehicles sold in the country. Long term, the country also may be a likely bet for a GigaFactory. The government has banned the export of nickel in its raw mined form, and wants to develop battery and EV industries.

Australia

Tesla continues to be by far the market leader for BEVs in Australia. Figures up to the end of August show they have about 30% of the EV market in total. Volume is still low for EVs in Australia. In 2020 EV sales are up on those of 2019. Even so market leader Tesla only sold about 2072 cars in the first nine months of the year. 90% of these were the Model 3.

EVs are a paltry 0.6% of total auto sales in the country. The federal government works very closely with fossil fuel interests and has held off incentives for EVs. Public pressure is likely to change this policy quite sharply. Market leader Tesla stands to benefit.

Tesla's largest revenue generator for the country is for its energy storage business, for which contracts are continuing to grow strongly. The successful business makes Tesla the second most trusted car brand in the country despite the small total sales.

Japan

Musk had expected great things from Japan but so far they have not happened. It's the best-selling imported EV in the country. Indeed it represents 90% of imported EVs, but that only comes to 1,300 cars! The annual auto market in Japan is 5.2 million units.

The Nissan "Leaf" is by far the market leader for EVs. The Japanese in general are loyal to Japanese brand cars. Tesla is the fifth best-selling EV in the country. Comments abound about how Model 3s are now being seen on Japanese roads, but I have yet to see meaningful sales figures to back this up. Musk has stated that the FSD (full driving system) and autopilot will soon be available in the country. These software systems need to be developed on a country by country basis.

Tesla previously suffered from the Model S and Model X being considered too large for the country's generally tight roads and small parking spaces. The Model 3 may represent the company's best chance to make real inroads. The company has recently stepped up promotional efforts there.

Tesla has a close relationship with Japanese battery giant Panasonic. This might provide some benefit. Japan's market leader Toyota (NYSE:TM) is a very different kind of company from Tesla and "Japan Inc." may stay resistant to Tesla. The next few months will see whether the production from Shanghai and the new models can finally make the impact they are having elsewhere Asia.

India

Recent reports suggest Tesla are negotiating for an investment in Bengaluru, at the center of India's high tech industry. This is said to be for a factory for autos and batteries. Musk himself recently tweeted that Tesla would be investing in India in 2021. In the first instance it seems the Tesla online ordering configurator will be available in January. However some caution is advised.

Investing in India can be a long-drawn out and difficult business, as Apple (NASDAQ:AAPL) have found in recent years. Indian PM Modi did visit the Tesla factory back in 2015. He showed much enthusiasm, but nothing has transpired. To me, a Tesla Gigafactory in India seems far off into the future.

It's not easy to see how India's chaotic roads could have the infrastructure for an EV network in the near future. There are no Superchargers in place and energy sufficiency can often be a problem. In the first instance cars would be shipped from Shanghai, but there's a near 100% cost on imported vehicles.

Back in July Musk had confirmed he was looking at a new factory in Asia. India might be an option, but Thailand is more likely. Thailand already has an established auto manufacturing industry. It's an easier place to set up a manufacturing operation than India. The same applies to Indonesia. More and more countries in Asia are committing to an EV future and Tesla will no doubt have plenty of willing suitors.

Singapore

The affluent island state has not historically been a friend to EVs. Out of 628,000 cars on the road, about 1,100 are EVs. There are thought to be about 30 Teslas in the country. I have pictured one below at a Singapore sports club:

However the government seems to have had a Damascene moment and has committed to phasing out ICE vehicles by 2040. It's thought the tax regime may become more favorable for EVs. Tesla has been advertising for staff for a new office in the country and it seems direct sales will start soon.

Hyundai this month broke ground on a small EV factory in Singapore. This will manufacture about 30,000 "Ioniq" models per annum. The change-over from ICE to EV seems to be gaining pace in the country. The country has been going ahead with autonomous driving trials, which also may be to Tesla's benefit.

Singapore is probably the world's most expensive country in which to own a car. Despite the high prices, German car models are everywhere on the country's roads. In a country where people like to parade their car as a status symbol, price may not be a barrier. Currently, importers are offering the Model 3 Std Plus at a wallet-wrenching S9,888 (US2,000).

Conclusion

Musk recently confirmed his target for the company to manufacture 20 million vehicles per annum by 2030. That would roughly translate to the current combined production of Volkswagen (OTC:OTCPK:VLKAF) and Toyota. The recent research report by New Street Research puts the current addressable market of Tesla at 20 million, rising to 80 million by 2025. Indeed, their analyst considers Tesla could become the world's most valuable company.

The always bullish investor Ron Baron sees the current market cap of approximately US0 billion rising to US trillion within 5 years. Already the market cap of Tesla is greater than that of Toyota, Volkswagen (OTC:OTCPK:VLKAF) and Daimler (OTC:OTCPK:DDAIF) combined. After that trio of established ICE manufacturers, the next biggest market cap auto company is BYD Auto. That shows which way investors see the auto world going.

Asia will only increase in importance and cement its position as a global powerhouse in a range of activities. As my earlier article detailed, for Tesla Asian sales could well already represent 200,000 out of the anticipated 500,000 for the year as a whole. As these figures here showed, China, Japan and India are respectively the world's largest, third largest, and fifth-largest auto markets for sales.

The company's worldwide reach is key to continuing rapid growth. Further headlong growth will require strong market share in Asia and further Gigafactories in Asia. Tesla's powerful position in China is key. Being located in China helps provide sufficient access to minerals for all the battery units needed. China looks set to dominate the renewables future and Asia to dominate EV sales.

Tesla's sales increases and investments in Asia point to a master plan taking shape for the company. It will grow alongside China and Asia in the new energy sphere as renewables replace fossil fuels. This should result in Tesla's continuing leading role in these secular growth areas.