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Tesla’s Performance in China: Should Investors be Bullish or Bearish?

Published 29/02/2024, 14:30
Updated 29/02/2024, 14:30
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Investing.com -- Tesla (NASDAQ:TSLA), the electric vehicle giant, has gained a strong presence in China in recent years. However, it has also faced its fair share of challenges in the country, ranging from production issues to concerns over government support and competition from local players.

Nevertheless, Tesla has shown resilience and growth in the country, solidifying its position as a leading player in the Chinese electric vehicle industry. One of the key factors driving Tesla's success is its Gigafactory in Shanghai.

Even so, the question remains, should investors be bullish or bearish on Tesla's performance in China? The stock is down 18.7% year-to-date.

Tesla Sales in China

While Tesla China sales figures are not posted by the company, recent reports revealed there were more insurance registrations in the week ending February 25, 2024, compared to the previous two weeks. However, it is important to note that this was in part due to the Chinese New Year, which usually sees a decrease in vehicle registrations.

Furthermore, for the week between February 19 and 25, vehicle registrations for Tesla China came in at 10,800 units, up from the 8,200 vehicles between February 5 and 18.

In January, it was reported that Tesla sold 94,139 China-made electric vehicles in December, rising 68.7% year-on-year. For January, Tesla sold 71,447 China-made vehicles, according to data released today by the China Passenger Car Association (CPCA). This was down month-on-month but up around 8% from the previous year.

Prominent Tesla bear Gordon Johnson, CEO and Founder of GLJ Research, told Investing.com that “with just 64.8k domestic China registrations through week 8 of 1Q24, TSLA is on track for its worst China quarter since 1Q23.”

“At the current rate of ~8.1k per week, it may struggle to even hit 125k vs. 172.7K in 4Q24 and 137.0 in 1Q23. This is beyond bad and puts even a 440k quarter in jeopardy (the Street is currently modeling 477.9K),” said Johnson.

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Tesla Recalls China

As mentioned earlier, Tesla’s business in China has not been without issues. In January, the Elon Musk-led company had to recall more than 1.6 million vehicles exported to the country due to problems with their door latch controls and automatic assisted steering.

The models impacted were the S, X, 3, and Y.

That isn’t the only time Tesla has had to recall vehicles in China. In May 2021, the company was forced to recall 1.1 million vehicles in the country to address braking problems.

Growing Competition in China

Tesla has strong competition in China, with names such as BYD (SZ:002594), Li Auto (NASDAQ:LI), Nio (NYSE:NIO), and XPeng (NYSE:XPEV) all vying to become the number one electric vehicle company in the country. Earlier this year, it was reported that for the first time ever, BYD had outpaced Tesla in total EVs sold.

According to analysts, Tesla’s competition in China is an important headwind for investors to be aware of.

Jonathan Woo, a Senior Research Analyst at Phillip Capital, recently downgraded Tesla stock to Neutral. He believes the “key short-term headwind” for Tesla would be “significant competition from Chinese-made EVs driving down prices and margin.”

“[There is] a lot of uncertainty around how long this will go on for,” Woo told Investing.com. “Demand-supply dynamics have moderated due to: 1) more affordable EV options; 2) initial hype wearing off; 3) supply improving significantly due to ramp of new factories.”

Meanwhile, Garrett Nelson, VP and senior equity analyst at CFRA Research, believes the primary issue Tesla faces in China is competition.

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Nelson, who has a Buy rating on Tesla shares, told Investing.com: “Chinese domestic automakers continue to flood the market with new EV models, many of which have much-improved range and other specs. Demand isn’t the problem, as China’s EV adoption rate is well above that of the U.S. and even most European countries."

Learn more about Tesla

Elon Musk stands out in the financial world as a technology visionary and serial-entrepreneur, but it’s arguably Tesla that first brought him to the attention of the general public. Learn more about his incredible journey with Tesla facts, statistics and sales figures.

Investors can also take a step further and explore the wider case for being bullish or bearish on Tesla’s future growth.

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