Tough realities have put the company between a rock and a hard place
U.S. electric carmaker Tesla felt the heat of the U.S.-China trade dispute last year, pushing it to accelerate construction of its Shanghai assembly line. But tough realities have put the company between a rock and a hard place.
Tesla released its annual report for 2018 on Tuesday, saying sales in China fell by $270 million to $1.76 billion, according to the report.
The profitability in China of the company, which is valued at about $52 billion, seems to be shrinking. Last year, revenue reaped in the Chinese market only accounted for about 8.2 percent of the top line, compared with 17.3 percent in 2017.
One reason is that the tit-for-tat car tariffs imposed by China and the U.S. on each other have driven up car prices, Feng Shiming, a car analyst at Shanghai-based Menutor Consulting, told the Global Times on Thursday.
Facing a lethargic market, "Tesla had to cut prices three times, with the premier edition of the Model X declining to 590,000 yuan ($87,900) from 790,000 yuan," Feng added.
The company has also been struggling to stabilize production. On Wednesday, founder Elon Musk tweeted and clarified his goal of "an annualized production rate at the end of 2019 probably around 500k, ie 10k cars/week," shooting for 40,000 deliveries this year. In the financial report, the company said it expects to start the initial phase of Model 3 production at the Shanghai site for the local market in China by the end of 2019.
The company also faces more competition in China, where several manufacturers have introduced hybrid vehicles. Shanghai-based automaker Nio delivered more than 10,000 ES8 model electric powered sport utility vehicles in 2018, according to auto. gasgoo.com. With Nio's new ES6 model having rolled out in December, Tesla can only face more pressure.
Whether it can make cars in China for the local market in 2019 has become a make-or-break question. The carmaker admitted the future of the Shanghai Gigafactory could potentially keep the company from reaching the Model 3 production goal.
The annual report said that "…if we experience issues or delays in building our Gigafactory Shanghai in China or commencing and ramping Model 3 production there, we could experience issues in sustaining the Model 3 ramp or delays in increasing Model 3 production further."
"Tesla is likely to face a dilemma. On the one hand, it wants to get its Shanghai plant ready as soon as possible. On the other hand, it won't be an easy task to pull off, since Elon Musk wants to produce auto parts from scratch instead of importing from the U.S.," Feng said.