Tesla (TSLA) Secures Green Signal for Sale of Model Y in China

Tesla Inc. TSLA recently procured an official permission to start selling its Shanghai-made Model Y series of sports utility vehicle (SUV) in China.

Tesla’s flagship model in China — Model Y — has been recently registered officially with the nation’s Ministry of Industry and Information Technology (MIIT). Chinese regulators at the MIIT published the sales approval on its website this Monday.

The Model Y is an all-electric, mid-sized SUV, with seating capacity up to seven, equipped with cylindrical nickel, cobalt and manganese (NCM) batteries. It is the second model Tesla will manufacture at its Giga Factory in Shanghai, China, following the Model 3 sedan. Earlier this month, the company started boosting the production capacity of its Shanghai Giga factory so it could commence producing the Model Y vehicles there. The Shanghai factory is slated to roll out its first Model Y cars in early 2021.

Tesla currently sells its Model 3 electric vehicles (EV) in China. The Shanghai Giga factory began production last October and sold its first made-in-China Tesla cars, the Model 3 series, to Chinese customers in December the same year. The company, in fact, delivered more than 12,000 Model 3 vehicles in the country in October this year. The EV giant has also started exporting China-made Model 3 cars to Europe as well as plans to develop electric vehicle chargers in China in 2021.

Tesla’s Giga Factory was waiting for a production permit to mass produce the Model Y. Now that the red-hot EV maker has obtained the sales permit from MIIT, it can commence mass production of Model Y. Tesla China’s goal is to manufacture 550,000 units in 2021, out of which 250,000 Model Y vehicles need to be produced next year. Given that 2021 will be the first year Giga Shanghai attempts to produce the Model Y, building 250,000 units of Model Y SUV would be quite a challenge for the company.
 
Moreover, if the Shanghai Giga Factory is able to meet its target, Tesla — currently carrying a Zacks Rank #3 (Hold) — could produce 1 million cars in a year in 2021, achieving another milestone. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Rising EV Frenzy in the Chinese Auto Sector

Currently, China is the world’s biggest EV market and the country has been head strong in its transition toward a green future.  Importantly, the country aims electric cars to account for 25% of the new car sales by 2025 and kick start an era of green transportation. Amid this transforming scenario, automakers in China are fast changing gears to electric. Despite the coronavirus pandemic rattling the auto sector, China’s EV space has been witnessing a boom as one after another carmakers have reported new highs in monthly and quarterly deliveries.

Reportedly, Tesla’s share of China’s EV market was 21% during the first six months of 2020 compared with the prior year’s 6%. Tesla regained its Chinese market share once it started selling domestically-produced vehicles in China in late 2019 as those were 13% cheaper for Chinese consumers than the vehicles imported from the United States. In the first nine months of 2020, China accounted for 19% of Tesla’s top line compared with the 12% reported in the corresponding period of 2019.
 
Even with its dominant market share in the mainland, the California-based automaker faces stiff competition from Chinese electric vehicle firms like the Shanghai-based electric startup NIO Inc. NIO.

Further, Chinese companies like XPeng Inc. XPEV and Li Auto LI, both of which debuted on U.S. exchanges recently, are also capitalizing on this trending EV hype. 

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