Elon Musk says Tesla’s biggest challenge will be Chinese car companies



Elon Musk temporarily shed his “Mr. Tweet” cap for Wednesday’s Tesla earnings call to identify the biggest challenger to his electric car giant: competition from China.

With Tesla coming off its worst year in markets, Musk, who has been the company’s CEO since 2008, had some tough questions to answer during the investor call covering the company’s performance during the fourth quarter of 2022. The company’s shares have fallen 50% over the past year after a meteoric rise in 2020 and 2021, nestling in at a two-year low in November of last year. 

Investors in the electric vehicle company have fretted over Musk spreading himself too thin after acquiring Twitter last year, while his appearance in court this week for allegedly misleading Tesla investors in 2018 with his “funding secured” tweet has certainly not helped matters. 

So Tesla investors were likely relieved when the company reported record revenue on Wednesday. Musk said during the call that the company saw the “strongest orders year to date than ever in our history” in the first few weeks of January, suggesting that a series of price cuts worldwide had helped boost demand. 

But when pressed on the state of the electric vehicle industry in China, where Tesla has lost ground in the past year, Musk conceded that Chinese companies are the most likely to challenge Tesla’s dominance.

“We have a lot of respect for the car companies in China. They are the most competitive in the world in our experience, and the Chinese market is the most competitive,” Musk said. “They work the hardest and they work the smartest, and we have a lot of respect for the Chinese companies that we are competing against.”

“If I were to guess, it would probably be some company out of China as the most likely to be second to Tesla,” he added.

China’s growing EV industry

Electric vehicles are big business in China, with the market accounting for two-thirds of EV demand last year, and Tesla, which began producing cars in its Shanghai Gigafactory in 2019, is far from the only game in town. 

Demand for EVs in China is huge; a record 6 million electric cars were sold in China last year, accounting for over a quarter of new vehicle sales, and Chinese electric car companies are rising to meet demand. Chinese carmaker BYD, which is backed by Warren Buffett, raced past Tesla in electric car sales in China last year.

In 2021, roughly 300 EV-manufacturing companies operated in China, benefitting from over a decade of investments and generous subsidies by the Chinese government to grow the industry, which now includes around 4 million charging stations spread throughout the country’s provinces, one of which has three times as many charging units as the entire U.S. 

EV subsidies were initially intended for electric cars to reach price parity with combustion engine vehicles, and the sector has matured and diversified in the decade since they were first implemented. The box-size Mini EV developed by Chinese company Wuling cost just over $5,000 last year, and in 2021 it ranked as the best-selling electric car in China

Subsidies for consumers were scaled back in 2021 and scrapped on Jan. 1 of this year, but some tax exemptions remain in place, while industry analysts have forecasted that the industry will become more market- than policy-driven in the coming years.

A threat to Tesla

Musk has praised Chinese automakers in the past, calling them the “most competitive in the world” in 2021 while adding that Chinese electric carmakers boasted advanced software designs that could “shape the future of the automobile industry.”

But they also represent an enormous threat to Tesla’s waning power as demand for its vehicles softens in China, which currently makes up 40% of the company’s sales. BYD, Tesla’s main competitor in China, and other Chinese manufacturers posted huge sales growth towards the end of last year, while Tesla’s numbers slumped more than 40% in December.

Tesla lowered car prices in China twice in the past few months once the Chinese government removed its EV subsidies to prop up sales amid slowing demand. The company has since cut prices in the U.S. and other markets too.

Musk suggested during the earnings call that the price cuts seemed to have worked, given Tesla’s record profits last quarter, and added that the outlook for demand in the year ahead was optimistic, despite “probably a contraction in the automotive market as a whole.”

A BloombergNEF analysis forecasted Tesla sales to grow by 40% in 2023, while its in-demand Model Y car could become the best-selling EV in the world and even break into the top three cars of any type globally. But while Tesla is still performing in some places, increased competition from China’s domestic automakers might push that all-important market further out of reach.

Learn how to navigate and strengthen trust in your business with The Trust Factor, a weekly newsletter examining what leaders need to succeed. Sign up here.





Source link