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Elon Musk’s visit underscores China’s importance to global EV market, analysts say

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An aerial view of Tesla Shanghai Gigafactory on March 29, 2021 in Shanghai, China.

Xiaolu Chu | Getty Images News | Getty Images

From handshakes with Chinese officials to visits to China’s top ministries, 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.

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],” Sassine told CNBC’s “Street Signs Asia.”

During Tesla’s earnings call in April, Musk identified U.S.-China tensions as a risk to the company’s projections for 2023.

Politics and macroeconomics

Sassine said the visit could also be seen as a “political statement” to China, where business leaders like Musk and JPMorgan chief Jamie Dimon are “telling politicians on both sides of the Pacific that business needs political stability.”

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.

In the face of such conditions, companies have slashed prices to boost sales, and this will hurt their profits, he said.

Price wars

China's BYD has a 'weapon' that Tesla doesn't have, says investment advisory firm

It won’t be easy for Tesla, however. He noted that China the most competitive market for EVs, with Tesla competing with multiple local companies for supremacy. “Tesla is, unlike other places in the world, not the only top dog in this market,” he added.

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.

Read more about electric vehicles from CNBC Pro

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.

Russo pointed out that Chinese EV maker BYD sells extended range hybrids. This is “a weapon that Tesla doesn’t have,” he said adding that BYD also outsells Tesla two to one in the pure battery electric business.

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 competition.

“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.

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


An aerial view of Tesla Shanghai Gigafactory on March 29, 2021 in Shanghai, China.

Xiaolu Chu | Getty Images News | Getty Images

From handshakes with Chinese officials to visits to China’s top ministries, 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.

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],” Sassine told CNBC’s “Street Signs Asia.”

During Tesla’s earnings call in April, Musk identified U.S.-China tensions as a risk to the company’s projections for 2023.

Politics and macroeconomics

Sassine said the visit could also be seen as a “political statement” to China, where business leaders like Musk and JPMorgan chief Jamie Dimon are “telling politicians on both sides of the Pacific that business needs political stability.”

Elon Musk's visit to China shows how important the market is for Tesla, strategist says

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.

In the face of such conditions, companies have slashed prices to boost sales, and this will hurt their profits, he said.

Price wars

China's BYD has a 'weapon' that Tesla doesn't have, says investment advisory firm

It won’t be easy for Tesla, however. He noted that China the most competitive market for EVs, with Tesla competing with multiple local companies for supremacy. “Tesla is, unlike other places in the world, not the only top dog in this market,” he added.

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.

Read more about electric vehicles from CNBC Pro

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.

Russo pointed out that Chinese EV maker BYD sells extended range hybrids. This is “a weapon that Tesla doesn’t have,” he said adding that BYD also outsells Tesla two to one in the pure battery electric business.

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 competition.

“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.

“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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