- Tesla stock is up 29% YTD and completes full recovery since January.
- Its Shanghai Gigafactory will deliver new Model 3s on December 30, kickstarting local production.
- Subsidies and tax exemption make Model 3s more affordable, which will attract more local consumers.
The Tesla stock (NASDAQ: TSLA) is up 29% year-to-date and it is set for a better year in 2020. After dominating the U.S. and European electric car market, the firm is introducing the first batch of Model 3s made from its Shanghai Gigafactory.
The construction of Tesla’s Gigafactory in China only began in December 2018. That means that within just a year, the entire factory was built, manufacturing line was established, and the flagship Model 3s were produced from the factory.
China is a big market for Tesla and its bet is paying off
When Tesla first revealed its ambitious plans to build the Gigafactory in China last year, analysts were skeptical on whether its operations can be profitable and if the Model 3 can attract Chinese consumers.
So far, everything seems to be going right for Tesla in China. The company successfully secured $1.4 billion in financing from local Chinese banks, won a 10% tax exemption for the Model 3, and the firm’s vision generally goes in line with Chinese government’s focus on the electric car market.
The kickstart of production at the Shanghai Gigafactory and the 10% tax exemption are crucial catalysts for Tesla entering 2020 as it would place the Model 3s in an affordable price range for local customers.
More affordable cars for local customers
In the U.S., the Tesla Model 3 is sold at a base price of $35,000. In China, it starts at $50,000, due to existing import taxes for foreign cars.
But, with the tax exemption and the offering of government subsidy of up to $3,600 per vehicle can bring down the price of the Model 3 closer to the price in the U.S.
Strategists in China have speculated that the various benefits were provided to Tesla to put more pressure to local electric car makers by the government.
In the medium-term, Tesla said that it may consider bringing down the price of locally produced cars at the Gigafactory by 20% by 2020 by using local parts with lower costs.
It is not the Gigafactory in itself that would boost Tesla’s sales significantly in the coming year. But rather, the synergy among Tesla’s dominance in the U.S., European, and Chinese markets will strengthen the global presence and brand value of Tesla.
Technology is getting even better
As the sales aspect of Tesla continues to improve, the company is also taking a notch further with its battery technology.
In recent months, the company has filed numerous battery-related patents in the U.S. for longer lasting and more efficient batteries.
“More specifically, this disclosure includes additive electrolyte systems that enhance performance and lifetime of lithium-ion batteries, while reducing costs from other systems that rely on more or other additives,” the patent read.
Skepticisms around Tesla’s mammoth $77 billion valuation will always float around despite the firm’s clear improvements in sales, operational stability, technology, and global expansion.
Bulls like Ark Investment’s Cathie Wood maintain an optimistic long-term outlook on Tesla, targeting a $700 billion market valuation.
This article was edited by Samburaj Das.