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Morgan Stanley Remains Bullish as Tesla Passes 'Peak China Dependency'

Published 09/20/2022, 07:35 AM
Updated 09/20/2022, 07:48 AM
© Reuters.  Morgan Stanley Remains Bullish as Tesla (TSLA) Passes 'Peak China Dependency'
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By Michael Elkins 

Morgan Stanley reiterated an Overweight rating and $383 price target on American electric automaker, Tesla (NASDAQ:TSLA) after examining the company’s position in China.

The electric vehicle market in China was valued at $124.2 billion in 2021 and is expected to grow to $799 billion in 2027 as per Mordor Intelligence. China currently accounts for 62% of the total global BEV sales. Tesla’s market share is around 9%. However, the Model Y remains the second most popular model in China and claims the top unit sales among luxury models.

An analyst believes that Tesla may be passing through its 'peak China' dependency stage over the next 12 months. Tesla has been a leader in the Chinese electric vehicle market for years. However, now the company is facing stronger competition from domestic Chinese EV companies. That competition has driven Tesla to increase its promotional activity in the market.

Morgan Stanley's China auto team says that the automaker has started to offer a subsidy of $ 1,140 to customers who already have a reservation for Model 3/Y. This subsidy (available only to customers who purchase Tesla insurance) is available from September 16th to the 30th.

According to a Morgan Stanley China auto analyst, such promotional measures are relatively common in the industry and should not come as surprise. Local media believes that the promotions could help to urge consumers to 'lock in' their orders and smooth the pace of deliveries into peak season while enticing new customers into the brand at more affordability prices to complement shorter delivery timelines.

The analyst wrote in a note, “In our view, the remainder of the decade will see a rapid industrialization of Tesla's NAFTA and EU supply chains to achieve compliance with programs such as the IRA (and potential EU equivalent) which will drive a natural dilution of the role of China in Tesla's demand footprint and supply ecosystem.”

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