Tesla touts Chinese market, wows with surprise profits

Elon Musk extols new Shanghai Gigafactory as ‘template for future growth’.

Photo:Shutterstock.com

In stark contrast to other US carmakers, Tesla CEO Elon Musk touted China as a platform for future growth as the electric vehicle manufacturer unveiled a surprise return to profits on Thursday that sent its shares soaring.

The new facility in Shanghai was built in a record 10 months, cost 65% less than comparable Model 3 production plants in the US, and Tesla said it was “highly confident” that the company would exceed its target of 360,000 vehicle deliveries this year.

“I’m not aware of any factories of this magnitude in history being constructed in such a short period of time,” Musk said. “Gigafactory Shanghai will become a template for future growth.”

Tesla’s boosterism about China contrasts with other US carmakers that have suffered from the fallout of the US-China trade dispute and slowing economic growth.

Tesla reported a consensus-busting $143 million of third-quarter profits, and said it expected China would become “the biggest market for Model 3.” But Detroit-based companies have been downbeat.

On Wednesday, Ford lowered its full-year profit projections after it reported weaker earnings in the third quarter due to a 30% sales slowdown in China.

General Motors suffered a similar setback in China as sales in the region fell 17.5% in the third quarter compared to the same period a year ago.

Tesla’s return to profit, its first since 2018 and following a cumulative first-half loss of $1.1 billion, was due to greater cost control after revenues slipped to USD 6.3 billion, below expectations of USD 6.5 billion and down from the USD 6.8 billion of sales recorded a year ago.

“The cost-cutting initiatives and getting to a consistent level of profitability are the linchpin to the story going forward,” said Dan Ives, managing director at Wedbush Securities.

Tesla shares soared more than 20% in after-hour trading.

China is already Tesla’s second-biggest market after the US, helped by government regulations that make gasoline-powered cars more expensive than electric vehicles.

The Shanghai facility is notable in that its cars will be produced for the Chinese market from the country’s first fully foreign-owned car plant — even as the US and China are embroiled in a long-running trade dispute.

The facility may also end the near-monopoly supply of batteries hitherto provided by Panasonic, the Japanese manufacturer.

“With Model 3 priced on par with gasoline-powered mid-sized sedans, we believe China could become the biggest market for Model 3,” Tesla said in the earnings release.

Tesla said it was working on finalizing the manufacturing license and meeting governmental requirements before mass production began. But trial production has started ahead of schedule and Musk has forecast that 1,000 Model 3 cars will be rolling off production lines every week by the end of this year.

Nikkei Asian Review previously reported that Tesla has been on a hiring spree in Shanghai since September. The company put out more positions for the Gigafactory in its WeChat account last week as it gears up for the official production to kick off.

The company added it is in the final stage of the site selection process for its new Gigafactory in Europe, which will be announced soon. The European Gigafactory is expected to begin production of both Model 3 and Model Y in 2021.

This article first appeared on Nikkei Asian Review. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei. 36Kr is KrASIA’s parent company.