Companies engaged in the production of batteries and components for electric vehicles (EVs) are enjoying a bull run in China, as they hitch a ride with the first Tesla electric car to roll off the company’s Shanghai assembly.
A series of events leading up to the unveiling of Tesla’s Model 3 last week fuelled investors’ interest in Chinese parts suppliers, including the companies that build charging stations, and even the miners of the lithium used in battery packs.
First, Tesla cut the price of its China-built Model 3 cars by 9 per cent, after securing tax exemptions from the Chinese government. Then, Tesla’s chief executive Elon Musk unveiled a plan to produce the Model Y sports utility vehicle (SUV) in China. To top it off, a Shanghai factory director said Tesla plans to increase its use of locally sourced parts to 100 per cent by the end of 2020, up from the current 30 per cent.
That was a shot in the arms for China’s parts makers, like Tianjin Motor Dies Company, which jumped 82 per cent since early December to a two-year high of 7.36 yuan on the Shenzhen exchange. Investors are piling in not just because of optimism that Tesla’s demand for Chinese parts and raw materials will climb in the coming years, they are also hoping for Tesla to spearhead a top-notch supply chain that can lead to home-made champions, like what Apple did to China’s smartphone industry.
“The impact of the localisation of Tesla on China’s EV car part supply chain could be similar to that of Apple on China’s smartphone supply chain,” said Ian Zhu, managing partner at Nio Capital, a technology-focused fund co-founded by Chinese electric vehicle maker Nio. “China will build a strong and competitive ecosystem of EV car part producers. Many Chinese carmakers will benefit from it, as costs decline and technology advances.”
Infographic: Electric vehicles and the Made in China 2025 industrial master plan
Behind Tesla’s speedy progress in China – the Shanghai Gigafactory delivered its first cars less than a year after it broke ground at the start of 2019 – is Beijing’s big push to become a world leader in EV and new-energy vehicles (NEV).
After years of providing heavy subsidies, the government is phasing out incentives to inspire more competition among players. It is also counting on Tesla to lead the race in the world’s largest market for cars and EVs.
EVs will make up 35 per cent of China’s annual car sales by 2030, up from the current 3 per cent, according to forecast by investment research firm Morningstar.
Tesla’s entry into China is also likely to spur new demand for higher-end EVs among Chinese families, as most EVs were bought by corporate such as ride-hailing app operators or taxi firms, according to Ivan Su, automotive equity analyst at Morningstar Investment Management Asia.
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