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Electric vehicle pioneer Tesla began delivering China-made Model Y crossover vehicles on Monday. Local manufacturing for the company will impact everything from delivery volumes to profit margins.
The China-built Model Y was approved for sale in late 2020 and Tesla (Tesla shares - ticker: TSLA) confirmed that production had already started when it released fourth quarter delivery figures in early January. Now customers have started buying their cars.
Profit margins
Local manufacturing, in China or other geographic regions, means lower delivery costs. And the lower costs help Tesla earn more. This was the scenario that took place in 2020 with the Model 3 sedan when Tesla's Shanghai plant increased production.
“The cost of vehicles produced in Shanghai in the first quarter is already below the cost of producing the Model 3 in Fremont,” CFO Zachary Kirkhorn said during the company's first quarter 2020 conference call. Tesla earned around 23 cents per share during that quarter, far exceeding Wall Street's projections for a loss per share of around 7 cents. That profit is the worst time for markets during the Covid-19 pandemic, around the time Tesla's facility in Fremont, California closed due to lockdowns.
Pricing
The lower costs have also allowed Tesla to cut prices multiple times in 2020. CEO Elon Musk is prioritizing volume growth over profit margin for now. He wants Tesla to get as big as possible and produce cars at lower prices for different segments of the auto market.
"I think we won't succeed in our mission if we don't sell cars at affordable prices," Musk said during the company's Q2020 339.000 earnings conference call. “Yes, we must not go bankrupt, of course, this is important. But we're not even trying to be super profitable. " Tesla is selling the Shanghai-made Model Y for a base price of 52.000 Yuan or about $ 6. NIO (NIO) EC368.000 crossover vehicles start at XNUMX Yuan.
Production
Tesla will have more Chinese-made cars in 2021 than it did in 2020, as it will ramp up production of the Model Y. The company's plant in Texas and Berlin, Germany, are also expected to go live.
Greater capacity is important for investors. Tesla delivered around 500.000 cars in 2020. Wall Street expects it to increase to around 840.000 cars in 2021. Delivery estimates for 2021 have increased in recent weeks. The stocks are still doing very well. After an increase of more than 740% in 2020, Tesla shares have risen another 17% year to date. The S&P 500 and the Dow Jones Industrial Average, for comparison, both grew by less than 1%.
