Wall Street Rolls Eyes as Tesla Delivers First China-built Cars in Shanghai

Today, Tesla delivered the first vehicles made at Gigafactory Shanghai, less than 1 year after breaking ground on the new factory. Wall Street analysts –– still not tired of being wrong –– rolled their eyes. @elonmusk @tesla

Less than a year after breaking ground at Gigafactory Shanghai, Tesla today delivered the first vehicles produced at their new Chinese factory. Bloomberg commemorated the occasion with a story mocking Tesla’s achievement:

Tesla Inc. is about to find out whether the second time is the charm for Elon Musk making bold predictions about how many cars the company can build and sell.

Bloomberg

The second time is the charm? Apparently the best selling electric vehicle in the world isn’t selling well enough for our friends at Bloomberg.

The electric-car maker handed over the first 15 Model 3 sedans assembled at its new multibillion-dollar plant near Shanghai — its first outside the U.S. — to company employees at the facility on Monday. Tesla took the same approach when it started production of the sedan in California in July 2017, delivering its first Model 3s to staff.

Bloomberg

The comparison to the original Model 3 handover event is interesting but ultimately misguided. When the first 30 Model 3 were delivered, it was mostly for show. Not only had Tesla not scaled up effectively for mass production, they hadn’t even finished the vehicle’s software. Basic features like rear-seat heaters only came in later via an over the air update.

That stands in stark contrast to what’s happening at Gigafactory Shanghai today. Not only does Tesla have a mature software platform and mass production underway in the United States, there’s also evidence the China factory could already be pumping out over a thousand cars a week. Model 3 could be seen filling the parking lots over the weekend:

After reaching that milestone more than two years ago, Tesla went through months of what Musk called “production hell.” After consistently falling well short of its chief executive officer’s ambitious targets, the electric-car maker burned through billions of dollars and came within weeks of running out of money.

Bloomberg

The idea that Gigafactory Shanghai is about to enter “production hell” and run Tesla out of business is severely misguided. Ramping production won’t be easy but this is no production hell. It’s a lot more like production heaven.

It appears that this time, Tesla is having no problem pumping Model 3 vehicles out of its factory. During the original handover event, Tesla delivered 30 cars because that’s all they had made. This time, there are rumors that Tesla will hold a massive delivery event at Gigafactory Shanghai where they will deliver over 1,000 Model 3 all at once, in one day:

The China plant is already assembling more than 1,000 cars a week, and aims to double that rate over the next year, according to Song Gang, the manufacturing director at the facility.

Bloomberg

A brand new Chinese factory with lower costs and fatter profit margins pumping out 1,000 cars a week less than a year after groundbreaking. Sounds like hell.

Despite all the progress made, Musk still has his doubters. Jeffrey Osborne, an analyst at Cowen & Co., predicted Monday that Tesla will fall short of the low end of its delivery forecast for this year. He predicts the company will hand over about 101,000 vehicles in the fourth quarter, coming roughly 4,000 units short of its annual target for at least 360,000.

Bloomberg

101,000 electric cars in Q4 –– which would be the highest sales numbers in the history of the company –– is now the worst case “disaster” scenario. Think about that.

Osborne, who rates Tesla the equivalent of a sell, is skeptical that demand for the Model 3 will continue at current rates. He’s concerned consumers will be less interested in the car as subsidies drop in China and the Netherlands, and as a federal tax credit expires in the U.S.

Bloomberg

A $1,875 tax credit you get back next year if you have enough tax liability isn’t going to make a huge difference. Plus, many state and utility incentives are still available. In China, subsidies are actually increasing with a purchase tax exemption and electric vehicle subsidies from the government for Chinese-made Model 3.

“The large amount of over exuberance related to the demand for Tesla’s products in the mid to long term has increased over the past few months, and we believe much more successful penetration is baked into the stock than is likely to play out,” Osborne wrote in a report. “While Tesla has built a very dedicated fanbase that has been willing to excuse poor build quality, customer service, and service infrastructure, we continue to be skeptical around broader adoption.”

Bloomberg

Analyst logic: It’s the worst car ever –– a true nightmare to own! –– but Tesla’s “fanbase” keeps buying the car anyway because they’ve been indoctrinated into a cult. There’s zero chance it’s actually a great car.

With brain dead logic like this, is it any surprise these analysts have been wrong on Tesla time and time again?

More workers will receive vehicles over the next couple of days, and deliveries to customers will start in January, company officials said at the event.

Bloomberg

The fact that they’re saving up most of the deliveries for Q1 2020 suggests that Q4 deliveries are very strong. Starting deliveries at volume in Q1 will help smooth out delivery figures and avoid as much of an unfavorable comparison as we saw in Q1 2019.

Demand for the locally built Model 3 is “very good,” and Tesla is confident it will sell all vehicles manufactured at the site, Allan Wang, general manager of Tesla China, said at the plant. “Our aim is to kill all internal-combustion engine cars.”

Bloomberg

China is the world’s biggest market for passenger vehicles. Logically, we must conclude there is “no demand” for Tesla there.

While deliveries to customers haven’t started, Monday’s milestone caps several months of wins for Musk. The latest came Friday, when the locally built car was included on a list of vehicles qualifying for an exemption from a 10% purchase tax in China.

Tesla said in October the locally built Model 3 will be priced from about $50,000. On top of the tax exemption announced Friday, the China-built model this month qualified for a government subsidy of as much as about 25,000 yuan ($3,600) per vehicle.

Bloomberg

So, you’re telling me the government is going to pay for a significant portion of the car? Definitely sounds like it’s going to be a huge failure.

About 30% of the parts now used by the Shanghai facility are sourced locally, and the company plans to increase that to 100% by the end of 2020, said Song, the manufacturing director.

Bloomberg

100% locally sourced parts? Does anyone know if that’s good or bad for profitability?

China is by far the largest market for mid-sized premium sedans. With Model 3 priced on par with gasoline powered mid-sized sedans (even before gas savings and other benefits) we believe China could become the biggest market for Model 3.

Tesla, Q3 2019 Update

Let’s recap what happened in 2019:

Tesla transformed Gigafactory Shanghai from “an open field with some digging going on” to a fully functional car factory. This brand new car factory will be building Model 3 and soon Model Y at a lower cost than the Fremont plant, for rapid delivery (with no shipping costs or import duties) into the world’s largest auto market. The factory will pump out affordable high tech all-electric increasingly autonomous vehicles. And yet, analysts are still rolling their eyes.

At some point, you’d think they would grow tired of being wrong all the time.

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4 thoughts on “Wall Street Rolls Eyes as Tesla Delivers First China-built Cars in Shanghai

  1. Every single point in this note seems to be taken directly from the $TSLAQ doomsday cult’s book. Even the wording feels suspiciously familiar…

    I always assumed that nobody takes these twitter clowns seriously (aside from some financial yellow press scribes) — but after seeing this note, I’m not so sure any more. I can’t think of any explanation that doesn’t involve this Osborne guy using them as the source for his “research”…

  2. BTW, I have seen at least three different theories regarding deliveries from Shanghai only beginning next year.

    The idea that they already have enough deliveries in Q4, and want to save the Shanghai ones for Q1 instead, doesn’t seem very plausible to me: it would literally be a first for Musk… As far as I can tell, the reason Tesla never seems able to follow through on repeated promises to “unravel the wave” of deliveries through the quarter, is that when numbers are weak, Musk pushes hard so it becomes less of a disaster — but when numbers are already good, he pushes just as hard, to make the victory as big as possible… So there is never a good time to start pushing deliveries out into following quarters to smooth things out 🙁

    Another theory I have seen is that it would be disadvantageous for the balance sheet. I don’t know enough about accounting to tell whether this is plausible in principle — but if it’s true, wouldn’t the symbolic deliveries also trigger it?…

    By far the most plausible theory I’ve seen is that the newly announced tax exemption only comes into effect in the new year.

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