Asia Thematic Insights: Tesla and the EV supply Chain in China

THIS MATERIAL IS A MARKETING COMMUNICATION.

Asia Thematic Insights: Tesla and the EV supply Chain in China


Q1: Why did Tesla choose China as its first overseas manufacturing hub? Why did the Chinese government allow Tesla to have 100% ownership without a JV partner in China?

As Tesla looks to extend its leadership in battery technology and further lower its cost base to remain competitive, we believe that setting up a factory in China will allow Tesla to be closer to its supply chain and fully tap onto the capabilities of China’s burgeoning EV supply chain. Tesla plans to increase local sourcing to 100% in China by the end of the year from the current 30%. In order to encourage growth and technological investment in China’s EV sector, the government has allowed Tesla to enter the market without the usual 50-50 JV model with a local OEM. During Tesla’s recent battery day, the company also talked about ramping up the Shanghai capacity to one million units in the longer term and supplying to other Asian markets using China as its base. 

Q2: How popular is the Tesla model 3 in China? Is it threat to Chinese EV makers? What would the implication be to China’s EV manufacturing value chain?

Tesla has delivered more than 70k units of the Model 3 in China YTD, accounting for over 10% of the Chinese market. Since Tesla’s key models are positioned in the mid to premium segment of the market, it will likely be adopted by more well to do consumers as a second or third car or in cities with license plate restrictions. Chinese EV startups have made ample room to grow and we have seen successful Chinese EV start-ups such as Li Auto, Nio and Xpeng. We believe this will benefit the domestic supply chain in China from the import substitution trend. Domestic EV parts companies that are certified by Tesla will also find it easier to break into the supply chains of other global OEMs.

Q3: How about other partnerships between Chinese EV players and global OEMs in China ? What is VW’s EV strategy and its implication for Chinese EVs?

VW is investing more than 2bn euros in two Chinese EV players, JAC Motor and Guoxuan High Tech. Hefei will become VW’s EV manufacturing hub in China using VW’s proprietary MEB platform. VW will become the largest shareholder in EV battery maker Guoxuan in order to secure their long term battery supply. This demonstrates VW’s commitment to the Chinese market and will improve corporate governance, technology and execution of their Chinese partners. 

Q4: Chinese EV batteries are said to have strong cost advantage. If so, by how much? Will China keep its cost competitiveness?

Based on our estimates, a comparable NCM battery made by CATL is around 20% cheaper than global peers. China has a strong position in key raw materials and chemicals required for the production of EV batteries such as lithium and refined cobalt. These are important elements of the battery cathode. Labour cost in China is also lower than other developed markets. This ensures low cost supplies for the EV battery supply chain. China should continue to dominate on cost due to its inherent supply advantage and large EV market which help to drive economies of scale. 

 

Asia Thematic Insights: Tesla and the EV supply Chain in China


Q1: Why did Tesla choose China as its first overseas manufacturing hub? Why did the Chinese government allow Tesla to have 100% ownership without a JV partner in China?

As Tesla looks to extend its leadership in battery technology and further lower its cost base to remain competitive, we believe that setting up a factory in China will allow Tesla to be closer to its supply chain and fully tap onto the capabilities of China’s burgeoning EV supply chain. Tesla plans to increase local sourcing to 100% in China by the end of the year from the current 30%. In order to encourage growth and technological investment in China’s EV sector, the government has allowed Tesla to enter the market without the usual 50-50 JV model with a local OEM. During Tesla’s recent battery day, the company also talked about ramping up the Shanghai capacity to one million units in the longer term and supplying to other Asian markets using China as its base. 

Q2: How popular is the Tesla model 3 in China? Is it threat to Chinese EV makers? What would the implication be to China’s EV manufacturing value chain?

Tesla has delivered more than 70k units of the Model 3 in China YTD, accounting for over 10% of the Chinese market. Since Tesla’s key models are positioned in the mid to premium segment of the market, it will likely be adopted by more well to do consumers as a second or third car or in cities with license plate restrictions. Chinese EV startups have made ample room to grow and we have seen successful Chinese EV start-ups such as Li Auto, Nio and Xpeng. We believe this will benefit the domestic supply chain in China from the import substitution trend. Domestic EV parts companies that are certified by Tesla will also find it easier to break into the supply chains of other global OEMs.

Q3: How about other partnerships between Chinese EV players and global OEMs in China ? What is VW’s EV strategy and its implication for Chinese EVs?

VW is investing more than 2bn euros in two Chinese EV players, JAC Motor and Guoxuan High Tech. Hefei will become VW’s EV manufacturing hub in China using VW’s proprietary MEB platform. VW will become the largest shareholder in EV battery maker Guoxuan in order to secure their long term battery supply. This demonstrates VW’s commitment to the Chinese market and will improve corporate governance, technology and execution of their Chinese partners. 

Q4: Chinese EV batteries are said to have strong cost advantage. If so, by how much? Will China keep its cost competitiveness?

Based on our estimates, a comparable NCM battery made by CATL is around 20% cheaper than global peers. China has a strong position in key raw materials and chemicals required for the production of EV batteries such as lithium and refined cobalt. These are important elements of the battery cathode. Labour cost in China is also lower than other developed markets. This ensures low cost supplies for the EV battery supply chain. China should continue to dominate on cost due to its inherent supply advantage and large EV market which help to drive economies of scale. 

 

AUTHORED BY
Wei Wei Chua, CPA
Senior Investment Analyst – Industrials, Autos

Date: November 3, 2020
Category: Electric Vehicle, Video

The mentioned companies are strictly for educational and fund marketing purposes only. For more information on our product offering, please refer to our website.

Disclaimer
This document is intended for Hong Kong investors only. This material is neither an offer to sell nor solicitation to buy a security to any person in any jurisdiction where such solicitation, offer, purchase or sale would be unlawful under the laws of that jurisdiction. Investment involves risk.
The information in this material is based on sources we believe to be reliable but we do not guarantee the accuracy of completeness of the information provided. This material has not been reviewed by SFC and shall only be circulated in countries where it is permitted.
This material is intended solely for your private use and shall not be reproduced or recirculated either in whole or in part, without the written permission of Mirae Asset Global Investments. This document has been prepared for presentation, illustration and discussion purposes only and is not legally binding. Whilst compiled from sources Mirae Asset Global Investments believes to be accurate, no representation, warranty, assurance or implication to the accuracy, completeness or adequacy from defect of any kind is made. The division, group, subsidiary or affiliate of Mirae Asset Global Investments which produced this document shall not be liable to the recipient or controlling shareholders of the recipient resulting from its use. The views and information discussed or referred in this report are as of the date of publication, are subject to change and may not reflect the current views of the writer(s). The views expressed represent an assessment of market conditions at a specific point in time, are to be treated as opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. In addition, the opinions expressed are those of the writer(s) and may differ from those of other Mirae Asset Global Investments’ investment professionals.
The provision of this document shall not be deemed as constituting any offer, acceptance, or promise of any further contract or amendment to any contract which may exist between the parties. The issuer of this article is Mirae Asset Global Investments (HK) Limited (“we”) which we may or our managed funds may hold the mentioned securities. It should not be distributed to any other party except with the written consent of Mirae Asset Global Investments. Nothing herein contained shall be construed as granting the recipient whether directly or indirectly or by implication, any license or right, under any copy right or intellectual property rights to use the information herein. This document may include reference data from third-party sources and Mirae Asset Global Investments has not conducted any audit, validation, or verification of such data. Mirae Asset Global Investments accepts no liability for any loss or damage of any kind resulting out of the unauthorized use of this document. Investment involves risk. Past performance figures are not indicative of future performance. Forward-looking statements are not guarantees of performance. The information presented is not intended to provide specific investment advice. Please carefully read through the offering documents and seek independent professional advice before you make any investment decision. Products, services, and information may not be available in your jurisdiction and may be offered by affiliates, subsidiaries, and/or distributors of Mirae Asset Global Investments as stipulated by local laws and regulations. Please consult with your professional adviser for further information on the availability of products and services within your jurisdiction.
Hong Kong: This material is prepared by Mirae Asset Global Investments (HK) Limited (Mirae HK). Mirae HK is regulated by the SFC (CE reference: ALK083).
Australia: The information contained on this document is provided by Mirae Asset Global Investments (HK) Limited (“MAGIHK”), which is exempt from the requirement to hold an Australian financial services license under the Corporations Act 2001 (Cth) (Corporations Act) pursuant to ASIC Class Order 03/1103 (Class Order) in respect of the financial services it provides to wholesale clients (as defined in the Corporations Act) in Australia. MAGIHK is regulated by the Securities and Futures Commission of Hong Kong under Hong Kong laws, which differ from Australian laws. Pursuant to the Class Order, this document and any information regarding MAGIHK and its products is strictly provided to and intended for Australian wholesale clients only. By accessing this document and any information or content contained in it, you represent that you are a ‘wholesale client’ under the Corporations Act. This document is strictly for information purposes only and does not constitute a representation that any investment strategy is suitable or appropriate for an investor’s individual circumstances. Further, this document should not be regarded by investors as a substitute for independent professional advice or the exercise of their own judgement. The contents of this document is prepared and maintained by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Australian Investments & Securities Commission. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission of MAGI HK. Copyright 2020. All rights reserved.