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Here Is Why Tesla Does Not Seem To Have a Demand Problem in China

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by admin August 15, 2023

Tesla China

Tesla has a long track record of proving its detractors wrong, having demonstrated ad-nauseum its now-established credentials of a widow-maker stock for short-sellers. In light of the latest sales data out of China, Tesla again appears to be on the verge of clinching victory from the jaws of its critics.

A lot of the recent weakness in Tesla shares emanates from Elon Musk’s comments during the EV giant’s Q2 2023 earnings call, where he communicated continuing willingness to sacrifice profit margins to drive volume growth, banking on the eventual solution to the FSD conundrum to drive much higher profits in the long run. This suggested to analysts that more price cuts might be in the offing.

Bear in mind that Tesla has been aggressively cutting the prices of its EVs in key markets to drive volume growth. By May, the base variant of the Model Y was retailing at $47,490 in the US vs. $65,990 toward the start of the year, corresponding to a price slump of 28 percent. Similar price declines have been implemented in other key markets, including China.

Of course, this strategy is not without risks. After all, Tesla’s pre-tax profit margin has fallen from 19.30 percent in Q2 2022 to just 11.80 percent in Q2 2023, corresponding to a decline of 7.6 percent and relegating Tesla to merely the fourth most profitable automaker in the world.

In light of China’s continuing economic woes, marred by an anemic real estate market and subdued internal consumption, many analysts continue to expect Tesla to face demand-related headwinds in the world’s largest EV market. However, the company has continued to defy the odds on the back of incremental discounts and referral bonuses.

As explained in the above tweet, Tesla recorded 14,000 insured registrations in China last week, placing the EV giant in a comfortable position to exceed its Q2 2023 Chinese sales of 156,700 units – constituting a new record.

What’s more, for the first time since June, Tesla exceeded the weekly sales of Mercedes, BMW, and Audi in China last week.

Do note, however, that Tesla shares are down nearly 20 percent over the past month, evidencing investor caution as the EV giant’s margins continue to tumble precipitously.

Written by Rohail Saleem

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