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hi it’s Lee and welcome to the test
Economist as some of you could tell Elon
and Tech were behaving a little Coy when
asked about demand issues in China for
Tesla almost a sidestepping the issue
we’re just hearing that retail sales in
China grew two and a half percent in
September this was below the expected
3.3 growth and much below the 5.4 growth
there was in August and analysts are
warning about growing inventory glut
where Auto Sales slowed in September and
EV sales Rose at their slowest rate in
five months I mean slowest in five
months isn’t that big a deal really
every five months one of those months is
the slowest rate for five months as for
Tesla September was one of their highest
months ever for domestic sales in China
the highest before that only being less
than half a percent higher so pretty
much equal highest ever a month of sales
this is during the lowest month for the
overall EV sales males in China for the
last five months therefore if you
balance that out then it’s even worse
for the other EV competitors if Tesla is
having their highest month during the
same month everyone else is at a low
but I think it’s quite obvious that
perhaps Tesla is not able to sell all
the vehicles they make in China as
easily as before we have a very easy
metric to measure this the waiting time
for delivery for a new Tesla and the
Chinese Tesla order page it’s dropped to
one to four weeks now the rhetoric from
the Bears think this is due to demand
dropping
some well actually not even bears but
conservative Bulls as well or ones that
like to sound authoritative you know
analysts and fan managers well they’ve
been saying demand is dropping some even
made up figures of how fewer sales they
were and that Tesla had to export three
times more vehicles in September than
they actually did and that was a fund
manager with the largest holding being
Tesla I guess they just like the
attention all right though there are
issues in China and Elon was asked about
future backlog on the earnings call in
particular China Elon replied saying
that China is experiencing a sort of
recession due to the property Market in
my opinion this is an effect of the
modern monetary theory that China has
been using it may have helped their GDP
but eventually too much money ends up in
the wrong place and causes bubbles that
eventually pop and you come down to
reality and realize that money cannot
simply be created out of thin air or
thin paper as the case may be I was
obviously China has a lot of serious
issues given the fact they have a
massive generation gap after Baby
Boomers too there’s going to be some
serious demographic issues that China
will face soon enough Tesla’s growth
over the last couple of years or so can
solely be attributed to their China
expansion with their factories there but
Tesla has been using these factories to
serve the domestic Market they’re now
stepping up their exports the export
Market is likely still large enough to
serve all the vehicles made in China
without selling even any in China if
there are at least Logistics to support
it of course even in a recession it
doesn’t mean that everyone in China will
stop buying Teslas either and like I’ve
mentioned many times before Tesla can
reduce the prices of their vehicles in
China and still see great profits and as
Elon says in a recession it’s a chance
to remove businesses that shouldn’t be
around in the first place we see better
asset allocation in other words it would
be more likely that other order
companies might actually go under now
I’m not necessarily even talking about
local Chinese EVS however I’m actually
referring to the local ice industry the
likes of Mercedes or GMS that are made
in China these could suffer much more
and they end up having to close down
factories in turn reducing Supply and
likely moving their demand over to Tesla
although of course the demand is
naturally moving to EVS anyway remember
if anything gets tough for Tesla it’s
always much worse for everyone else
Tesla has the highest chance of survival
of being the last man standing and
before you say Teslas are too expensive
then remember the Chinese are only
selling EVS by making losses and of
course most Legacy Autos are also
selling their ice cars at around Break
Even too and making their profit on
Services parts and financing as we also
know Tesla have ramped up their
production to a massive level around 20
500 a week or around 90 000 a month and
the capacity is actually closer to a
hundred thousand if they take on more
shifts this is a large increase in
production which means there are more
vehicles to sell with demand not as good
in China as it was previously and this
increased Supply then Tesla are possibly
making more Vehicles than they can
actually sell as they’re also restricted
to the number of vehicles they can
export on ships to markets that still
aren’t close to filling their waiting
lists we talk about the value of Tesla’s
pricing power a lot and now we’re
witnessing it in full effect Tesla have
just dropped the prices of both the
model Y and model 3. the model y dropped
from 317 000 Yuan to 289 000 but will
now also qualify for the subsidy taking
a further 11 000 Yuan off their price
down all the way to 278 000 Yuan which
by the way is thirty eight thousand
dollars and that’s whilst the US dollar
is strong it would have been even less
before the stronger dollar that is not
what I classify as a high-end luxury SUV
at least not the sticker price of course
don’t forget all the other cost Savings
in fuel too and the model 3 is now 35
000 equivalent to
if I was an investor in EV companies and
saw this Tesla price drop I’d be much
more concerned about investments in
other Chinese EV companies than Tesla if
these prices are dropping all that
rhetoric of the Chinese EVS coming on
the market taking Tesla’s market share
well Tesla lowering their prices is
definitely going to take some of their
market share there was also a lot of
pentap demand around Teslas in China due
to a rumor that these prices might drop
and people waiting to see as for the
competition they can’t really retaliate
they’ve been having to raise prices due
to additional costs and still can’t make
a profit this must make things extra
scary for them that Tesla can now come
in at these lower price points not that
they were any real competition the
Chinese just make cheap EVS at cheap
prices Tesla make cars that you care
about and that care about you with your
safety first officially Tesla told
Reuters it was adjusting prices in line
with costs capacity utilization at its
Shanghai gigafactory has improved while
the supply chain remains stable despite
the impact on the economy of China’s
stringent zero covert restrictions
leading to lower costs it said so
Tesla’s costs have come down which makes
sense after these line upgrades with
about 30 percent more output from the
same floor size it’s just outstanding
and obviously lower costs
they are also using lower cost Motors
and continually refining the product and
Manufacturing resulting in lower costs
also if you noticed in the financials
there was nothing mentioned about the
lineup grades and downtime in costs it
was not under restructuring costs so it
obviously was absorbed in the cost of
goods sold implying margins were better
than we thought last quarter
particularly from China
Tesla actually used to sell their model
y for a lower cost than this when their
production rate was much lower so I
would guess that these lines are still
producing a 30 margin even after these
price drops and due to all this pent-up
demand and new pricing in true Tesla
fashion there were so many orders coming
in that the website crashed so it’ll be
interesting to see what the waiting list
becomes after this these really are
low-cost cars now this is absolutely
amazing it’s going to be really
interesting to see this quarter sales
now Elon said several times how good Q4
will be epic and great with two words he
used to describe it I wonder if they’ll
Step Up production more by adding
another shift too that would mean close
to 300 000 units produced just from
Shanghai for the quarter if they haven’t
then there’s still meant to be about 270
000 still massive numbers that we really
didn’t expect to reach around this time
last year this is all a bonus okay sure
it doesn’t quite make up for the 4680
progress we were promised but that is
coming and Shanghai is more of an
indication of what these factories are
actually capable of you know maybe when
we first told the model y Factory
capacity was 200 000 a year initially
now it’s nearly hitting there in just a
quarter to put it into perspective
I’ve been researching Tesla’s demand a
lot lately and been pointing out that
even if they drop prices then it
wouldn’t affect profits that much and
that it may very well be a possibility
that this happens the amount the prices
have dropped would affect quarterly
earnings by as much as 250 million
dollars but we’re close to six billion
total in earnings now which is much more
exciting and it might even be lower than
that if Tesla end up increasing their
exports more now too as they’re working
better with Logistics anyway for some
reason this makes me happy to see these
prices rise I’m not quite sure why
perhaps because it’s good to see Tessa’s
pricing power in action and having those
massive margins they can use it puts the
competition in perspective too oh
remember Tesla still probably have 30
margin buffer and Autos are a cyclical
industry they generally struggle to make
profits during recessions this is
Tesla’s equivalent it might explain why
Tesla were being so coy about it demand
in China on the call as they didn’t want
to mention the fact that they were about
to drop prices the market may not like
this news though but I’m more excited
about this Q4 now the demand issue in
China has been answered thanks for
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