Tesla to Make EV Chargers in China in 2021

GuruFocus.com
·3 min read

- By Mayank Marwah

Tesla, Inc. (NASDAQ:TSLA) is laying plans to start making electric vehicle chargers in the world's biggest car market, China, in 2021. The U.S. EV maker said it would invest 42 million yuan ($6.4 million) in the new facility, which will be dedicated to making its third generation of quick chargers, also known as the Supercharger V3. This reflects the automaker's effort to expand its charging network and boost sales in the Chinese market.


Tesla's ambitious plan

In a statement, Tesla said that the plant, which will be built near its gigafactory in Shanghai, is scheduled to begin operations next year in February and would be able to manufacture close to 10,000 charging stalls per year.

China, which is providing subsidies for early EV buyers, is intensifying its countrywide network of charging points. In fact, China already imports EV chargers from the U.S.

The Shanghai factory is a strategic location for Tesla and is part of the company's ambitious plan to grow in the EV space. The American carmaker aims to manufacture around 150,000 Model 3s during the next year. Tesla plans to export a portion of these vehicles to Europe, which is also a booming market for electric vehicles. The company's global growth strategy and expansion plan in this space have helped its stock witness a steep surge in recent quarters.

China is a key manufacturing market for Tesla. It has been augmenting capacity in the Shanghai gigafactory at a faster than expected rate and expanding its fleet, despite the pandemic. The company has been exporting cars made in the Mainland to other markets as well. It is quite likely that Tesla could repeat the same with the charging station, particularly given the huge capacity of 10,000 chargers per year, in my opinion.

Face-off with home grown players

One of Tesla's Chinese rivals, Nio (NYSE:NIO), recently reported quarterly earnings results which surpassed expectations. Other Chinese EV makers such as Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) reported mixed results, but issued robust sales forecasts, which sent their shares up.

However, the Chinese automakers are not likely to pose a threat to Tesla, according to managing director of Wedbush Securities in New York, Dan Ives. Tesla reaps more benefit of economies of scale as compared to Chinese electric carmakers. It also has the benefit of being a foreign carmaker to the Chinese market, and "foreign cars" are well-known to have their own distinct advantage throughout the world.

Moreover, what gives Tesla an edge over its Chinese EV rivals is its intellectual property, opines Citron founder Andrew Left. None of the Chinese EV makers (Nio, Li Auto and Xpeng included) or automakers that are adding EVs to their existing portfolios of gasoline and diesel powered cars have Tesla-like proficiency when it comes to software and semiconductors (or getting around at the patent office).

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.