Tesla Has Great Potential In Asia Beyond China
Credit to Author: Paul Fosse| Date: Sat, 24 Aug 2019 05:57:48 +0000
Published on August 24th, 2019 | by Paul Fosse
August 24th, 2019 by Paul Fosse
In this article, I want to discuss Tesla’s potential to grow in the Asian market. Everybody knows China is a huge opportunity since it is both the largest auto market in the world and it seems to get pretty good support from the government, which seems to be trying to address the air pollution issue in the country, but I wanted to look at the size of all the rest of Asia.
This article is a followup to my article on Tesla potential in Europe and the case for Gigafactory 4. The advantage is Tesla already has a Gigafactory in the region that is almost built. Tesla will be able to use the China Gigafactory to meet demand in the rest of Asia, while taking advantage of the lower labor cost, reduced shipping expenses and times, reduced working capital, and less chance of tariffs that come with building the cars on the same continent as you sell them.
The long waiting lines to check out Tesla Model 3 in South Korea 🇰🇷 $TSLA #Tesla #Model3 #SouthKorea #테슬라 #모형3 pic.twitter.com/9FaluhBoyr
— Vincent (@vincent13031925) August 15, 2019
In researching this article, I wanted to look at the markets that have recently opened up for Model 3 ordering and deliveries. Hong Kong, Japan, Macau, Australia, and New Zealand opened up Model 3 ordering a couple of months ago, and Tesla is getting ready to make its first deliveries soon. On Monday, Tesla also opened up orders in South Korea.
The Model 3 is getting attention is Japan, Australia, and South Korea, but are these major markets or not?
All of these markets are different. Below I discuss my thoughts about Tesla’s potential to increase sales in the short and long term. I use a combination of 4 factors to estimate the short-term and long-term sales for each market. I wouldn’t say the estimates are precise; they are more an educated guess.
Although the Japanese market is 3 times the size of the Korean market, it has been a very small market for Tesla probably because the Model S and X are just too large for the market. For example, Tesla’s larger vehicles couldn’t park in the automated garages common in Japan. Japan, having high electricity prices averaging about 29 cents a kWh doesn’t help, but gas prices of $5.05 a gallon more than make up for it. You could easily save $7,000 over 5 years over a base Camry. If Tesla could start with 1,000 sales a month and work toward the 4,000 to 5,000 a month that BMW and Mercedes have accomplished, Japan could be a major market for Tesla.
South Korea offers two incentives. The national government offers a subsidy of 9 million won (about $7,500), and with the provincial government subsidies, the total subsidy could be up to 20 million won ($16,500). This brings the base price of a Standard Range Plus down from 52 million won ($43,000) to 32 million won ($26,500). That is very competitive in a country that has electricity for 10 cents a kWh while gas averages $4.64 a gallon. Assuming you drive 10,000 miles a year (it’s not Texas, so I figured fewer miles per year), you would save $7,250 in fuel costs over 5 years. Considering the popular Hyundai Sonata starts at 23.5 million won ($20,900), the Tesla will be cheaper than the base Sonata after just 4 years, not even including maintenance savings. I think the Koreans will figure out quickly that a Model 3 is a much nicer car than the Sonata.
The sales target for the Sonata is 70,000 units a year, while the top selling import model was the Mercedes E300 4MATIC at 9,141 sales (prices start at 62 million won, or $52,300, about double the net price of the Model 3). It would make sense for Tesla to be able to quickly scale to double the sales of the Mercedes E300, which at 1,500 a month would be compatible with Tesla’s sales in Norway, and as the car became better known, it could grow from there since the South Korean market is about 10 times the size of Norway. As we just reported, South Korea has banned 8 Audi, Volkswagen and Porsche models as a reaction to the ongoing Dieselgate scandal. This has got to help drive more sales to Tesla.
Australia doesn’t have incentives or fuel savings on its side. Electricity rates are about 25 cents a kWh, while gas prices are fairly low at $3.52 a gallon. This means you only save $3,000 over a Camry over 5 years in fuel costs. This helps explain why Tesla only sold about a hundred vehicles a month last year in Australia. On the other hand, the car has gotten great reviews, as it tends to in every market it enters. Considering the entire luxury market in Australia is only selling about 7,500 cars a month, a reasonable goal would be to sell 500 a month in the short term and 1,000 a month over the next few years.
In Taiwan, Tesla has traditionally sold about 100 a month according to focus2move.com. With very low electricity prices of 9 cents a kWh and gas prices of $3.34 a gallon, there will be strong savings from driving an EV. With the country looking to ban the sales of gas cars by 2040, buyers should be receptive to Tesla. Like Australia, they should have a short-term goal of 500 a month that moves to 1,000 a month over the next few years.
In New Zealand, Tesla sales have traditionally been low with this report, from last year, claiming 244 units sold in all of 2017. They also have some modest government incentives, with the goal to get EVs to 2 percent of the market by 2021. With electricity prices of 21 cents a kWh and gas prices a high $5.65 a gallon, this market could surprise us. With BMW and Mercedes selling 100 to 200 cars a month last year, I think Tesla could have a short-term goal of a 100 a month and grow to 200 a month over the next few years.
Hong Kong Tesla sales have been all over the map, peaking at almost 3,000 month in the rush to buy the Model S before the incentives were eliminated and sales dropped to zero. I think the Model 3 should be able to sell a 100 a month and grow to 200 a month.
So are these estimates in the right ballpark? Collectively, these markets make up almost 10% of the global auto market and Tesla plans to make about 500,000 cars over the next year. We should expect these markets to take close to 50,000 units a year. As Tesla doubles production to over a million units a year with the Model Y rollout, we could expect these countries to double their sales as well.
Sales in these countries are likely to follow the trends we have seen in other international markets. First, there may be a big burst of sales as Tesla delivers a large batch of cars to meet the pent up demand for the people who reserved the car over the last 3 years. Then there will be a lull as the countries wait for another shipment of cars and the country’s sales and service teams scale up to meet demand. Then there should be a second wave as the first owners show people their cars. The third wave should happen when less expensive cars from the China gigafactory become available, and the fourth wave when the Model Y is introduced into these markets.
Use my Tesla referral link to get 1,000 miles of free Supercharging on a Tesla Model S, Model X, or Model 3 (you can’t use it on the Model Y yet), here’s the link: https://ts.la/paul92237 (but if someone else helped you, please use their link).
Paul Fosse A Software engineer for over 30 years, first developing EDI software, then developing data warehouse systems. Along the way, I’ve also had the chance to help start a software consulting firm and do portfolio management. In 2010, I took an interest in electric cars because gas was getting expensive. In 2015, I started reading CleanTechnica and took an interest in solar, mainly because it was a threat to my oil and gas investments. Follow me on Twitter @atj721 Tesla investor. Tesla referral code: https://ts.la/paul92237