The Elon Musk-led electric vehicle giant Tesla Inc. TSLA has been heavily reliant on China, both from the supply and demand perspective.
An analyst at Morgan Stanley thinks Tesla could be passing through its “peak China dependency” over the next 12 months.
Domestic Competitive Heating Up: In China, Tesla is facing its biggest-ever competition from domestic Chinese EV makers, analyst Adam Jonas said in a note. This is evident from the 8,000-yuan ($1,140) subsidy the company is extending to its Model 3/Y reservation holders in China, the analyst noted.
This subsidy, however, is available only for customers who purchase Tesla insurance.
The analyst sees more premium EV players following suit, pressuring the sales of foreign JV brands’ ICE vehicles, including luxury models, into the fourth quarter. This would force local dealers to react with more aggressive promotions, he added.
After the factory upgrade at Tesla’s Giga Shanghai, production is ramping up very quickly, the analyst noted.
The Chinese EV market was valued at $124.2 billion in 2021 and is poised to grow to $799 billion in 2027, Jonas said, citing Mordor Intelligence data. The country accounted for 62% of global battery EV sales on a year-to-date basis, he said.
While EV penetration has increased to 19% year-to-date from 13% in 2021, Tesla had a market share of 9% in China, behind the non-luxurious and low-priced Wuling, he noted.
China Story Will Lose Prominence: The remainder of the decade will see rapid industrialization of Tesla’s NAFTA and EU supply chains to achieve compliance with programs such as the Inflation Reduction Act of the U.S. and its potential EU equivalent, Jonas said.
This will drive a “natural dilution of China’s role in Tesla’s demand footprint and supply ecosystem,” he added.
Jonas has an Overweight rating and $383 price target for Tesla stock.
Price Action: Tesla closed Tuesday’s session down 0.11% at $308.73, according to Benzinga Pro data.