Market Overview

Tesla's Opportunity In China Could Double On Relaxed Regulations

Share:
Tesla's Opportunity In China Could Double On Relaxed Regulations
Related TSLA
Jim Chanos Talks The Short-Seller Strategy, Detroit's Bright Future
The Market In 5 Minutes: Interest Rates In Focus, Jones Beats Moore, And Cryptocurrency Excitement
Chanos delivers Xmas list of shorts (Seeking Alpha)

Foreign automakers have long been disincentivized to sell in China, where imports see a 25-percent tax and locally produced cars must be sold through 50/50 joint ventures with domestic entities. But the Chinese government, prioritizing a shift from fossil-fuel to electric vehicles, is reportedly considering a loophole.

A recent proposal would allow nonnative brands to set up wholly owned EV segments in free-trade zones, and Tesla Inc (NASDAQ: TSLA) is positioned to win big, according to Piper Jaffray.

“It seems possible that Tesla will be allowed to book 100 percent of the profit associated with locally-produced EVs, while most global competitors will probably continue booking only 50 percent (due to their entrenched JV structures),” analysts Alexander Potter and Winnie Dong wrote in a Wednesday note.

Tesla’s Play

If Tesla capitalizes on potential regulatory changes, it could see growth in China notably steeper than this year’s estimated 136-percent year-over-year delivery increase.

In fact, China could become Tesla’s biggest revenue source, according to Potter and Wong.

The company could benefit from China’s growing demand for luxury cars, standard vehicle sales that far outpace U.S. records, and non-competitive environment. China has little exposure to foreign brands, and although its firms lead global markets in EV production, with unit sales up 70 percent year over year, none pose a veritable threat to Tesla.

“We find most of China's EVs are chintzy in comparison to Tesla's products (with the exception of NIO's soon-to-be-released SUV), and realistically Tesla's most capable global peers are probably years away from releasing locally-built luxury EVs,” Potter and Wong wrote. “In the meantime, traditional (gas) luxury vehicles constitute TSLA's primary competition.”

And the government’s phasing those out.

tipranks_360.png

Big Upside

Considering Tesla’s potential in the Chinese market, Piper Jaffray reiterated an Overweight rating on the stock with a $386 price target.

“There's still plenty of uncertainty, but all else equal, we think recent developments have unfolded in TSLA's favor,” the analysts wrote. “The company was wise to delay investment, but once these JV-related policy details are finalized, we expect Tesla to announce its China strategy in relatively short order.”

Related Links:

Gene Munster Goes The Distances On Tesla: A Look At Short- Vs. Long-Term Expectations

A Better Idea? Ford In Talks To Build Electric Cars With Chinese Giant

Latest Ratings for TSLA

DateFirmActionFromTo
Oct 2017Evercore ISI GroupDowngradesOutperformIn-Line
Oct 2017Morgan StanleyMaintainsEqual-WeightEqual-Weight
Oct 2017Standpoint ResearchDowngradesHoldSell

View More Analyst Ratings for TSLA
View the Latest Analyst Ratings

Posted-In: Alexander Potter automotive Chinese automotiveAnalyst Color Long Ideas Reiteration Analyst Ratings Trading Ideas Best of Benzinga

 

Related Articles (TSLA)

View Comments and Join the Discussion!

Partner Center