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What Tesla’s Berlin Gigafactory means for its future in China

Tesla CEO Elon Musk cut the film at his company’s first European production facility on March 22, and inaugurated the electric vehicle maker’s fourth Gigafactory.

The official opening in Berlin came at the same pace as the opening of the Shanghai Gigafactory in 2020: Musk provided the first locally made vehicle, in this case a Model Y SUV, and danced the same happy dance as he did two years ago.

“Tesla will make sure it’s a gem for the region, Germany, Europe and the world,” Musk told attendees, especially Tesla car owners who were there to pick up the first batch of Berlin-made Gigafactory vehicles.

Aside from Musk’s optimism, the Berlin plant needs to increase production rapidly to help Tesla capture massive – but perhaps transient – demand from China, where the American company is unable to keep up with orders.

China has become Tesla’s key market since the opening of the Gigafactory in Shanghai. The company’s revenues in the country doubled for two consecutive years, reaching $ 13.8 billion in 2021, according to the documents.

China has also become the backbone of Tesla’s production for global customers amid overall supply chain constraints. Due to an epidemic closure, a global chip crisis and a shortage of manpower, Tesla’s Shanghai Laboratory was eventually tasked with producing more than half of all Tesla vehicles by 2021.

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But carrying the bulk of Tesla’s production needs comes at a price. More than half of Tesla’s vehicles manufactured in China in the past two months have been exported, according to data from the China Passenger Car Association (CPCA), which has forced Chinese Tesla buyers into long waiting times for shipping. This is a less-than-ideal situation for the EV maker, as both domestic and foreign players are rapidly gaining a foothold in the growing Chinese market.

Demanded [for Tesla] “Supply exceeds about 20% in China, and I do not believe that demand will start to balance with supply by early 2023 for Tesla,” said Dan Ives, CEO of Wedbush Securities.

The latest hiccup came in late March when Tesla was forced to suspend production at the Giga plant in Shanghai for four days due to a jump in the Corona cases that led to the city’s lockdown.

The Berlin Gigafactory that enters the network could give Tesla Shanghai the breathing space needed to meet China’s growing appetite for electric vehicles.

“A large portion of Tesla’s sales were reflected in Europe last year as a result of its global marketing strategy, so we see more stagnant demand in China this year,” said Zhang Junyi, a partner at US consulting firm Oliver. of the company.

Chart showing where Tesla's Shanghai Gigafactory output goes

Tesla’s German plant is approved to produce up to 500,000 vehicles a year, according to the government. The fifth Gigafactory, in the US state of Texas, is scheduled to open in April. Ives predicts this will give Tesla a total production capacity of 2 million vehicles by 2022.

However, the Berlin Gigafactory may not be able to increase production as quickly as Shanghai, which still holds the fastest-growing and highest-profit index on Tesla’s production sites.

The company faced a number of delays in opening its plant in Germany, which was due to go online in July last year. Musk also expressed concerns about the ability to recruit enough workers for Gigafactory in Berlin, according to a Reuters report.

Shanghai, on the other hand, was a model of efficiency.

“I want to give a special hand to the Tesla China team. This is the best quality, the lowest cost and also the low drama,” Musk said at Tesla’s annual shareholders’ meeting in October, announcing that Shanghai had exceeded Fremont – the company’s former headquarters and production center – in two years. .

Tesla's Gigafactory in Shanghai, China

Tesla’s Gigafactory in Shanghai, pictured, was the backbone of the automaker’s production, exceeding the output of its US hub within two years of its opening © Xiaolu Chu / Getty Images

But local policies that have helped Tesla expand rapidly while keeping costs low in China will not last forever. Shanghai’s initial corporate tax rate of 15% for Tesla may rise to 25% after 2023, which will weigh on the margins.

Meanwhile, while Beijing is re-adjusting subsidies for new electric vehicles and a growing number of domestic and international rivals are integrating into electricity, Tesla may find it harder to continue to dominate the Chinese market.

China’s Ministry of Finance announced in December that it would cut subsidies on “new energy vehicles” – electric, hybrid plug-in models and fuel cells – by 30% by 2022, with all subsidies ending on 31 December.

Since that announcement, Tesla has raised prices on a number of models in China.

According to Zhang in Oliver Wyman, Beijing is unlikely to change its mind about cutting subsidies for new energy cars, and other incentives may also disappear as electric vehicle sales rise. Programs offering free license plates for electric vehicles, for example, will be phased out in 2023. Procedures vary from province to province, but Beijing, for example, has a lottery system that can leave drivers waiting up to three years and paying more than 100 yuan. , 000 ($ 15,700) per plate.

Chart showing where Tesla makes its money

“After the industrialization of electric vehicles, which is not unique to China but has happened in other countries as well, there will be no subsidies,” Zhang said.

Industry experts said the deadline for subsidizing new energy vehicles on December 31 will spur sales as consumers rush to take advantage of the incentive.

But in the long run “it’s too early to know how EV car manufacturers and consumers will react if subsidies are cut by the end of the year,” said Chang Xu, a partner in advanced manufacturing and mobility at consulting firm EY-Parthenon. “The market will see some adjustments.”

Meanwhile, competition in the electricity market in China is growing.

Leading local automakers – Nio, Li Auto and Xpeng – all more than doubled sales in 2021. Xpeng supplied 98,155 vehicles, still far from Tesla’s total, but nearly three times its 2020 figure.

At the same time, veteran car manufacturers with a strong presence in China like Honda, Toyota and Hyundai have increased their axis for electricity. Toyota has pledged ¥ 8 ($ 70 billion) to electrify its array by 2030, and Honda has teamed up with Sony to sell EVs by 2025. Hyundai from South Korea has said it plans to invest about 19.4 tons ($ 16.1 billion) in EV-related businesses .

“The time window still exists for Japanese and South Korean players,” Chang said of the EY-Parthenon. “They still have advantages, such as reliable products, a good image and a brand reputation, and they are updated with advanced driver assistance and digitalization systems.”

For now, there may be enough growth to go around. The CPCA predicts that total new energy car sales in China will jump to 5.5 million units in 2022, compared to about 3 million units last year.

“Giga Shanghai and China will continue to be the heart and lungs of Tesla’s bullfighting story for the next three to five years,” Ives said in Woodbush.

A A version of this article First published by Nikkei Asia on March 29th. © 2022 Nikkei Inc. All rights reserved.

What Tesla’s Berlin Gigafactory means for its future in China Source link What Tesla’s Berlin Gigafactory means for its future in China

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