Elon Musk released “Mr. Tweet” closing for Tesla’s earnings call Wednesday to identify the electric car giant’s biggest challenge: competition from China.
With Tesla starting its worst year in the market, Musk, who has been the company’s CEO since 2008, had some difficult questions to answer during the investor call covering the company’s performance during the fourth quarter of 2022. The company’s shares have fallen by 50% more. last year after a meteoric rise in 2020 and 2021, nestling in a two-year low in November last year.
Investors in the electric vehicle company have been worried that Musk has spread himself too thin after acquiring Twitter last year, while his appearance in court this week for allegedly misleading Tesla investors in 2018 with a “safe fund” tweet certainly didn’t help matters.
So Tesla investors may be relieved when the company reports record revenue on Wednesday. Musk said during the call that the company saw “the strongest orders so far than in our history” in the first few weeks of January, suggesting that several price cuts around the world 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 admitted that the Chinese company is most likely to challenge Tesla’s dominance.
“We respect the car companies in China. They are the most competitive in the world in our experience, and the Chinese market is the most competitive,” said Musk. “They work the hardest and they work the smartest, and we respect the Chinese companies we compete with.”
“If I think about it, maybe some company out of China is the second largest to Tesla,” he said.
China has a lot of 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 at 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, passed Tesla in electric car sales in China last year.
By 2021, an estimated 300 EV manufacturing companies are operating in China, benefiting from more than a decade of investment and massive subsidies from the Chinese government to develop the industry, which now includes around 4 million charging stations spread across the country’s provinces , one of which has three times as many power units as the entire US
EV subsidies were originally aimed at electric cars to achieve price parity with combustion engine vehicles, and the sector has matured and diversified in the decade since it was first implemented. The box-sized mini EV developed by Chinese company Wuling cost just over $5,000 last year, and by 2021 it will be China’s best-selling electric car.
Subsidies for consumers are reduced again in 2021 and canceled on January 1 this year, but some tax exemptions remain in place, while industry analysts predict that the industry will become more of a market than a policy next year.
A threat to Tesla
Musk has praised Chinese automakers in the past, calling them “the most competitive in the world” by 2021 while adding that Chinese electric car makers have advanced software designs that could “shape the future of the auto industry.”
But they also represent a major threat to Tesla’s waning power due to vehicle demand in China, which currently makes up 40% of the company’s sales. BYD, Tesla’s main rival in China, and other Chinese manufacturers posted big sales growth late last year, while Tesla’s numbers fell more than 40% in December.
Tesla has lowered its car prices in China twice in recent months after the Chinese government eliminated EV subsidies to boost sales amid sluggish demand. The company has since cut prices in the US and other markets.
Musk suggested during the earnings call that the price cuts appear to be working, given Tesla’s record profits last quarter, and added that the outlook for demand next year is optimistic, despite “probably a contraction in the automotive market as a whole.”
BloombergNEF analysis predicts that Tesla’s sales will grow by 40% by 2023, while the Model Y car is expected to become the best-selling EV in the world and even enter the top three cars of all types globally. But while Tesla is still performing in some places, increased competition from China’s domestic automakers could put that most important market out of reach.
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