over 3 years ago • 2 mins
The race for control of the crucial Chinese electric vehicle (EV) market got even more turbo-charged on Monday – and Tesla’s share price may not remain insulated forever ⚡️
German automaker Volkswagen – the world's largest – will spend $17 billion over the next five years collaborating with Chinese partners on the development of 15 EV and hybrid models. Building on last year’s announcement of a global $33 billion investment in cleaner transportation technology, it’s a sign of VW’s determination to take on Tesla in the world’s largest car market.
Production begins next month at two Chinese factories which VW says will eventually be capable of turning out a combined 600,000 vehicles per year – three times Tesla’s local capacity. Demand is certainly on the up: following a recent U-turn on subsidy reductions, Chinese EV sales rose 45% last month compared to August 2019. They now account for 5% of the country’s new car purchases – but China’s government wants to make that 25% by 2025 in order to hit emissions targets ✅
With premium vehicles particularly popular, Tesla’s Model 3 remains China’s best-selling EV for now. But the company’s admission last week that it could be three years away from producing an “affordable” – and longer-range – electric car may leave the door open for rivals to put their foot down…
VW isn’t the only firm in Tesla’s rear-view mirror. Private Chinese firm Geely – Volvo **owner and major **Daimler investor – last week unveiled new long-distance batteries which it plans to sell to competitors. VW and Ford, like Honda **and **GM, have already launched tech partnerships, while Japan’s Nissan recently announced nine new Chinese hybrid and electric cars.
With a number of local startups also accelerating their EV plans – WM Motor, for example, last week raised a record $1.5 billion from private investors – future competition looks stiff in the key Chinese market. Yet Tesla’s share price, having already made back the 10% it lost on last week’s disappointing news, implies that the company will capture 35% of global EV revenue come 2030 at today’s average Tesla selling price (ASP) – 54% if ASPs fall to 2019’s average US car price.
If deep-pocketed rivals sacrifice short-term profits to grow Chinese sales while local upstarts corner niches, Tesla’s valuation could look increasingly unrealistic – leading to more of the sort of volatility that may have contributed to the stock being overlooked for inclusion in the US S&P 500 index earlier this month. Investors would do well to keep a close eye on how the crowded Chinese EV market develops... 🚗💨
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