Is China a Game-Changer for TSLA Stock?
The future of Tesla Motors, Inc. (NASDAQ:TSLA) remains the most controversial topic on the market as the company continues to delve into risky ventures, driven by its visionary founder, Elon Musk. Yet despite all the negative commentary, TSLA stock remains one of the hottest trades and continues its climb.
So far, Tesla’s dominance has been limited to the North American markets, primarily the U.S., which was the biggest market for electric vehicles (EVs) until this year. However, times are changing. The world’s most populous country is about to overtake us in becoming the next biggest market of EVs. Yes, China now boasts the biggest demand for EVs. (Source: “China forecast to become world’s biggest electric car market,” Reuters, December 6, 2015.)
This is understandable, as the country continues to struggle with the worst-ever condition of air pollution. The Chinese government issued a red alert last week, as the country’s capital fought with the horrible effects of smog. The country may have shut down some of its industrial activity, but carbon-emitting cars continue to throng its roads.
Now, Tesla already has some market share in China, albeit a nominal amount. The company managed to deliver a little more than 3,000 of its EVs in the country. However, producing “within” China would certainly be more profitable for the company. The good news is that the company might be able to hit local production well within three years.
The problem in China, however, is the complex government regulations. The government doesn’t allow foreign companies to operate independently in their country. For any foreign company to succeed in China, they must find a local partner.
One Chinese company that has caught my eye lately is Kandi Technologies Group, Inc. (NASDAQ:KNDI). The company is currently more popular for its EV parts than its cars, but its “K11” and “K17” EV models have recently enjoyed a reasonable reception.
Currently, BYD Auto Co. Ltd. is the leading global EV manufacturer and supplier that enjoys dominance in China. BYD is working in partnership with Daimler AG to produce electric cars in China and is likely the biggest competition in the country to both Kandi and Tesla.
Nonetheless, neither BYD nor Kandi Technologies offer the kind of quality and brand recognition as Tesla does. Tesla is also going far beyond a basic electric car, with next-generation capabilities, like its self-driving “Autopilot” feature. The “Gigafactory” is, in addition, a breakthrough that will take the company years ahead in time, much earlier and much faster than any other company.
Kandi is still in its early growth stage and partnering with a giant like Tesla could help both the companies in expanding their businesses in this tough, but massive, market.
The Bottom Line on TSLA Stock
Inarguably, carbon-emitting automobiles are becoming a grave concern in the world’s most populous country. Tesla CEO Elon Musk very aptly describes the current state we are in: “We’re running the most dangerous experiment in history right now, which is to see how much carbon dioxide the atmosphere can handle before there is an environmental catastrophe.”
Tesla is working on more than just cars to drive demand for green energy and build an ecosystem for a sustainable environment. Tesla’s “Powerwall” is one such example, which will be another big revenue-driver for the company in China, as more of its population makes a switch to solar energy.
The bottom line: TSLA stock could continue to soar as the company expands beyond its core U.S. business and into bigger markets like China and beyond.