Tesla announced on July 25 that the production of its Model 3 electric vehicles will start in the Shanghai Gigafactory by the end of the year. For Tesla, this is an important milestone that will allow the company to benefit from lower delivery costs to the Chinese market, while reaping the rewards of local regulatory credits.
Three months ago, Tesla had announced that production targets were unlikely to be met, but now they have adopted a more optimistic outlook. “Based on the production capacity of the Shanghai Gigafactory, we will continue to achieve the production target of more than 500,000 vehicles worldwide in the 12 months to June 30, 2020,” the company wrote in a statement.
Compared to the Model 3 production line in American factories, the Chinese one is more streamlined and cost effective. Tesla previously said that the second-generation of the Model 3 production line will be at least 50 percent cheaper than its Vermont-based Model 3 line and the Gigafactory line in Nevada. The large market China provides also works in Tesla’s favor, “Seeing that Chinese consumers purchased more than 500,000 mid-size luxury cars last year, the market provides Tesla with strong long-term opportunities.”
Foreign media pointed out that Tesla expects sales in China to continue to maintain strong momentum as local production will reduce transportation costs and tariffs. However, this will not eliminate all obstacles.
In the past year, China’s car sales have taken a hit. But earlier this month, preliminary data from China Car Association showed that car sales in June this year rose 4.9 percent year-on-year to 1.8 million, which is the first increase in the Chinese car market since May 2018.
Tesla also announced that it made $6.349 billion in revenue and experienced a loss of $1.12 per share – meeting expectations for revenue and below expectations for earnings.
While the loss is bigger than expected, Tesla confirmed that it is still sitting on cash worth about $5 billion – “the highest level in Tesla’s history.” This represents a big improvement compared to the previous quarter results of $4.5 billion in revenue and a loss of $4.10 per share.