Tesla To Expand Austin Gigafactory, Sales Surge In China
Tesla has applied to the Texas Department of Licensing & Regulation for permission to add five new facilities at its Gigafactory in Austin, Texas. The total cost of the expansion will run to as much as $775 million over the course of several years, according to a report by The Street. It says Tesla is looking for ways to reduce its reliance on production at the Gigafactory in Shanghai, China, where a raging Covid epidemic continues to disrupt daily operations for many businesses. There are also suggestions floating about that Tesla may be considering a new factory in Mexico — although, the thinking is the company may be planning to build components there rather than manufacturing automobiles — and Indonesia (almost confirmed).
According to registration documents filed on January 9th, Tesla intends to construct additional facilities for what appears to be a battery cell testing lab, cathode and drive unit manufacturing facilities, a die shop, and an undisclosed 693,093 square foot facility called Cell 1, according to the Austin Business Journal. Some of these new projects are due to start construction within a matter of weeks.
Does any of this have anything to do with the start of production of the long rumored Cybertruck, or possibly a less expensive model? Your guess is as good as ours. Getting information out of Tesla these days is more difficult than getting members of Congress to cooperate. We asked Elon when he stopped by CleanTechnica headquarters the other day when Cybertruck production would begin and he told us to go to Helen Waite. She must be the new PR person for Tesla.
Tesla Sales Surge In China
By now, most of you know that Tesla sales in China fell of a cliff at the end of December and the company suspended production at the Gigafactory in Shanghai temporarily. Tesla delivered 41,926 vehicles in China in December, down 33% from the 62,493 vehicles delivered in November, according to CNEvPost,
To compensate, Tesla reduced the starting price of its Model 3 sedan in China by around 13.5% to RMB 229,900 ($33,430), according to data from its website — the lowest starting price ever for a Model 3 in China. Tesla also lowered the price of the Model Y by around 10% to RMB 259,900 ($37,660). This marked the second time Tesla lowered the price of its cars in China in the past three months. Price cuts also went into effect in South Korea, Japan, and Australia so far this year.
The strategy worked. The company received 30,000 orders within three days of announcing the price cut in China, local media outlet Sina reported recently without citing its source of that information. Local news source ifeng.com quoted a mid-level Tesla executive as saying that the company delivered more than 10,000 vehicles in China on the day the price cuts were announced. Talk about pent up demand! Traffic and volume at several Tesla stores rose several times, with every car at one Ningbo store surrounded by customers, and at the height of the crowds, sales could allocate only a few minutes to each customer, according to the report.
Separately, Yicai, another local news source, reported this week that its site visits and phone research show customer traffic and orders at Tesla stores in China’s second- and third-tier cities increased sharply after the price cut, with orders at stores in some cities up 500% from December.
An update to Tesla’s China website yesterday showed that the latest expected delivery dates for both the entry-level rear-wheel-drive Model Y and the dual-motor all-wheel-drive Model Y Long Range are now 2 to 5 weeks, up from the previous 1 to 4 weeks. The expected delivery date for the Model Y Performance and the expected delivery dates for both versions of the Model 3 all remain unchanged at 1 to 4 weeks. The longer delivery date for the Model Y indicates that the number of people ordering the car is increasing rapidly, ifeng.com said, citing a Tesla employee.
Tesla’s move is seen as a reaction to the slump in demand it is facing in China. The EV maker’s vehicles registered just 2,110 insurance units in China last week, compared with 4,338 and 8,915 in the previous two weeks. Tesla sold 55,796 China-made vehicles in December, including 13,870 vehicles exported, according to data released today by the China Passenger Car Association (CPCA).
The price cuts will, naturally, impact the company’s profitability in the near term. Daiwa Capital Markets analyst Jairam Nathan lowered his price target on Tesla shares by $47 to $130 per share last Friday. He tells CNEvPost he sees profit margins on Tesla’s automobiles falling by around 20 basis points this year to 27.3%. It should be noted that most automakers would give their eyes teeth to earn profit margins like that. Don’t weep for Tesla. It is leading all other auto manufacturers when it comes to making money selling cars.
“We model a 10% decline in revenue per unit for 2023,” Nathan said. “We expect cost per unit reverting back to the $35,000/unit in 2023, but will only partly offset the revenue per unit decline. Fully ramped new facilities will drive cost efficiencies in addition to help from reversal in commodity & logistics costs.”
The Takeaway
As we reported recently, by foregoing franchise dealers, Tesla can adjust the prices of its products literally hour by hour if necessary, unlike other manufacturers who set prices once a year and usually keep them stable until the next model year comes around. Tesla has much more flexibility to set prices in order to adjust to market conditions, which are constantly changing. It also ignores the usual custom in the industry of annual model changes, so there is no reason to wait a year for the next model model to be introduced.
Many Tesla investors are in a tizzy about the shocking drop in Tesla’s share price over the past 12 months, and with good reason. Compared to where it was a year ago, the stock today has lost nearly two thirds of its value. Ouch!
People are questioning Musk’s sanity over his Twitter machinations, and he has said the new factories in Germany and Texas are giant money furnaces, but the true measure of the future of the company is the $775 million being pumped into the Gigafactory in Texas. Elon may be distracted by his attempts to regulate what every person on Earth says on Twitter, but somebody seems to be working behind the scenes to keep the wheels of commerce turning. That should calm some of the jitters about the future of the company that many people are feeling these days.
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