They said that Tesla stock was overrated. That it had reached the height of its bubble. That legacy carmakers were now in the EV game, so Tesla would find itself faced with formidable competition.
Then year-over-year (Y/Y) data for February emerged from the China Passenger Car Association. Tesla (NASDAQ:TSLA) delivered 18.3K vehicles, which emerges as +18% Y/Y in China for the same month in 2020. Moreover, because the Lunar New Year holiday during February typically reduces car buying activity, the Y/Y results are quite positive — to the point that the results are considered “impressive” by Wedbush Securities.
Tesla is now up in China, though, and suddenly the markets are breathing a sigh of relief. Further, Tesla rose in a substantial upward directional swing in market share shift versus electric rivals BYD, Nio, Xpeng, and Li Auto.
Retail sales of passenger cars last month more than quadrupled to 1.18 million vehicles compared with the year before, the China Passenger Car Association said Tuesday. The jump reflects the low sales during the same period last year. Sales had plummeted 79% in February 2020 as many cities were locked down and factories and dealerships were closed.
Tesla sold 18,318 Shanghai-made Model 3s and Model Ys last month, the China Passenger Car Association’s data showed.
The Capricious Markets Respond to Good Tesla News out of China
New Street Research has upgraded Tesla (NASDAQ:TSLA) to a Buy rating. New Street has assigned a price target of $900, which is grounded in a forecast for $12 EPS in 2023. Their report considered Tesla’s ramp-ups in Berlin and Texas as important factors to consider, suggesting that Tesla has the potential to reach 2 million units of production capacity by the forecasted end date. Sure, tight current timelines, building permits in Berlin, the anticipated Models S and X refreshes, the Model Y ramp-up in Shanghai, and the Cybertruck in design phase come with a few risks. Yet New Street Research doesn’t view these pushing the 2 million marker beyond the end of 2022.
The end game for Tesla? Outlook for demand will continue to be strong and competition will not end up being a factor, at least in the foreseeable future.
“We believe from a run-rate perspective Tesla is on track to be on a 200k+ unit trajectory in China for the year which remains a linchpin for the company hitting its 750k to 800k annual numbers for the year. From a production perspective, Tesla produced 23.6k Model 3/Y in about 21 days during February in China with some of these cars shipping to Europe,” analyst Dan Ives reported to Seeking Alpha. “We believe price cuts and the Model Y introduction were key to some of these changing market dynamics in China. That said, overall EV demand in the region looks robust with EV penetration set to go from 4.5% in China for 2020 to 10% by 2022 in this EV arms race with Tesla and its Giga footprint front and center.”
A study conducted by Chinese financial company China Industrial Securities suggests that Tesla’s Giga Shanghai should produce over 500,000 cars this year.
Shares of Tesla in the early morning today were up 5.03% early premarket to $591.27 followed after sunrise EST with shares up 7.31% premarket to $604.15. At time of publishing, it’s now at $674.97, up 19.89% on the day.
Cathie Wood, ARK Investment Management CEO, says her confidence in Tesla has gone up because Tesla hasn’t lost share in the electric vehicle market and because of the company’s drive to autonomous vehicles.
China’s Continued Emphasis on EVs
Since last year, China has been offering various subsidies and incentives to help boost car sales and mitigate the fallout from the Covid-19 pandemic. In recent months, Chinese regulators have announced more measures, including further relaxing vehicle-purchase restrictions and building more charging facilities for electric cars.
China is the world’s biggest car market, and its stated goals are to boost auto sales and add more charging facilities for electric vehicles this year. The government will encourage “steady increases” on spending on cars and “abolish excessive restrictions” on the sale of used vehicles, Premier Li Keqiang told the National People’s Congress in Beijing on Friday. More car parks, EV charging stations, and battery-swapping facilities will be built, and battery recycling systems developed at a faster pace, Li said.
Chinese government incentives include extending subsidies on NEV purchases, expediting a clear-out of older polluting vehicles, reducing taxes on used-car dealers, and promoting electric-car sales in rural areas. The policies are helping lift carmakers out of a three-year downturn. NEV sales rose 9.8 percent in 2020 to 1.11 million units, despite the heavy hit brought by COVID-19.
Overall vehicle sales are expected to rise this year for the first time since 2017, reaching about 27.2 million units, according to the China Association of Automobile Manufacturers. Demand for EVs offered by Tesla should help drive the rebound.
Final Thoughts on Tesla Stock
While many investors continue to think of Tesla as an electric car company, its foray into the Texas power market through construction of a gigantic battery connected to an ailing electric grid that failed its citizens in February reminds us it is far more than that. Tesla has now formally entered the eye of the US energy economy hurricane.
Gambit Energy Storage, LLC is a Tesla subsidiary that is building a 100+ megawatt energy storage project in Angleton, Texas. Documents describe it as a project that “uses proven, reliable, and safe lithium-ion batteries that are pre-assembled for use in climate-controlled containers with redundant operating and safety systems.”
Its potential size could power about 20,000 homes on a hot summer day. Workers at the site kept equipment under cover and discouraged onlookers, but a Tesla logo could be seen on a worker’s hard hat and public documents helped confirm the company’s role, according to reporting out of Bloomberg.
Ives said the chip supply chain should be “normalized” in March, and the recent sell-off presents a “massive buying opportunity,” as the world heads into the “golden age of EVs. While the stocks and the EV space is clearly going through a digestion period, we view this as a short-term pullback in a multi-year upward rally.”
If Tesla’s valuation hits $1 trillion, it would be the fifth-most-valuable US company based on current levels.