Tesla’s operation strategies in the markets of China and USA

By Jeff Lee / Mike Song 2022-11-21

After the challenges of finance and production operations for many years, Tesla had begun making profit since last year. Its turnover and profit had rapidly increased and completely outperformed most traditional major carmakers. This emerging carmaker that fights for a different business war had become the focus of global automotive industry in technology development, operation model, and the way for strategy deployment. Moreover, in the two major car markets – China and USA, Tesla fully reveal their positive ambition from their action plans recently, so that the significant growth in the future can be expected.

Since the production capacity of Giga Shanghai had been improved from H2 2020, Tesla’s sales performance and profitability had been electrified ever since.  In the past 2 years, either sales volume, profit, stock price, or factories under construction around the world, all of these pushed Tesla to the iconic level of global BEV industry. However, the competition in the BEV market had started to change since this year… The Chinese self-owned brand – BYD is rising up, while terminating the sale of ICE cars and entering the EV market by providing both BEV and PHEV models at the same time, that beats the long-standing champion FAW-Volkswagen in the monthly sales volume of Chinese market from a few months ago. It’s also expected that BYD will surpass Tesla to become the champion of annual sales in global BEV market. As for the other side of the globe – USA, where Tesla’s headquarter is located, is still bothered by the production capacity… the delivery time of hot-selling Model Y is up to 6 months. In this situation, Tesla began developing new strategies…

  • Tesla announced the car price reduction in China in the second half of October, and it is up to 5%~10%. Certainly, This is not the first time Tesla reduces the prices, but their localization rate of components had reached at least 95% that the total cost is reduced constantly; secondly, the hot-selling BYD and other self-owned brands had further expanded the BEV market size, so Tesla can speed up for sales pace before the end of this year to fill the gap of sales performance due to the city lockdown in Q2 this year; thirdly, the expansion work of the production capacity of Giga Shanghai has been completed that the annual production capacity had reached one million units, which is enough to support the sales operation to go full steam ahead.
  • At the same time, hundreds of engineers from Giga Shanghai will be sent to Fremont Factory, California, to help conducting the 3-month-long works of automation and the improvement of production capacity. The current production capacity of Fremont Factory, California is 650,000 units per year, which is way lower than that of Giga Shanghai.

The penetration rate of BEVs in the market of USA in just 6% since the beginning of this year, which can’t be compared with China that has reached to about 30%, and is also lower than the level of 20% in Western Europe. This is caused by the slow progress of public charging station deployment, and also the late introduction and insufficient supply of BEVs from local carmakers (exclude Tesla) are inferior to the markets of China and Europe. Tesla doesn’t face the same stiff competition and huge business opportunity as that in China market, instead, the insufficient production capacity and excessive cost of production (in comparison with the Giga Shanghai) is the biggest challenge at the moment, which also leads to the unstable supply of Tesla Taiwan. Moreover, the establishment of Giga Texas is mainly in consideration of cost. Tesla shows different operation strategies in the markets of China and USA, which reflected the trend of the huge gap of the BEV industry development between China and USA currently. As for the Giga Berlin that just began production in Q2 this year, I assume that it will be the key for Tesla to maintain the continuous improvement of the global sales performance in the upcoming years. It will further expand the battlefield from China to the BEV second largest market – Europe, so that Tesla can grab the opportunity to shorten the gap of global sales number from BYD next year.