Elone Mask visit to China for Tesla.

 

• Musk’s visit is not just about Tesla, but its a “political statement” calling for stability on both sides of the Pacific, one analyst says.
• While Tesla’s strategy of slashing prices may get grouses from some shareholders and investors, it is the only way to survive in a “hypercompetitive” Chinese EV market.
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Elon Musk’s visit to Beijing is putting the spotlight on China’s place in the global electric vehicle market.

The Tesla CEO’s visit to China is a “very important one” for him, said Anthony Sassine, senior investment strategist at investment manager Kraneshares.

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China accounts for 50% of Tesla’s vehicle sales and 20% of its production capacity, and this visit would “set the story straight, to make sure he was on the same page as the [Chinese Communist Party]

Politics and macroeconomics

Politics is not the only reason. Sassine pointed out that the macro environment for EVs in China has been “tough,” and highlighted China’s ending of subsidies on new EV purchases, as well as rising interest rates in the U.S.

Price war

The point  that Tesla was forced to slash prices in the first place shows how important the China market is to the U.S. electric carmaker, said Bill Russo, 

Russo said Tesla needs the economies of scale that China provides to maintain its cost advantage globally, “but in order to sustain that, you need to make sure that you maintain your relevance here.”

When asked if Tesla’s strategy of cutting prices is appropriate, Russo said Tesla is “fighting with an older portfolio” — Model 3 was launched three years ago and Model Y two years ago.

As such, Tesla has to rely on pricing to maintain its competitiveness, unlike other places around the world where it doesn’t face such stiff 

Generally price wars are won by companies who can outprice you and right now Tesla is not the lowest price competitor in the market.”

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As such, it has had to use price to compete against Chinese EV companies that are introducing new models and to counter the aging of its product portfolio.

“The problem is Tesla everywhere else in the world represents ‘premium EV,’ but in order to fight the battle here in China, you’ve got to wage a price war,” he said.