Tesla’s Gigafactory in China
On July 10, Tesla (TSLA) “signed a Cooperative Agreement” with Shanghai authorities to “start building Gigafactory 3, a new electric vehicle manufacturing facility in Shanghai,” according to a report from CNBC. The company plans to start its Shanghai-based factory construction “in the near future.” Tesla will begin producing vehicles at the new plant in “roughly two years.” Tesla expects to take another two to three years to reach a production rate of 500,000 vehicles units per year after the initial production starts at the plant.
Tesla’s quest in China
During the company’s annual shareholder meeting on June 5, Tesla’s management confirmed that its first Gigafactory outside the US will be located in Shanghai, China. Tesla’s CEO Elon Musk added that the company could announce the “details of the China Gigafactory as soon as next month.”
Notably, Tesla reduced the prices of its vehicles in China in May after China lowered import tariffs on vehicles. In contrast, the company was forced to increase the prices of its Model S and Model X in China ~20% this month. According to CNN, China’s retaliatory tariffs included “some motor vehicles with electric motors.”
After Tesla’s China factory announcement, its stock price posted a high of $327.33 in early trade on July 10. The stock price settled at $322.47 with 1.2% gains for the session. At the same time, other automakers (XLY) stocks including General Motors (GM), Ford (F), and Fiat Chrysler (FCAU) rose by 0.9%, 0.5%, and 0.2%, respectively.
Tesla’s quest to become an electric vehicle market leader in the world’s largest auto market could yield high returns in the long run. However, investors’ concern that Tesla might need to raise extra funds to build its China Gigafactory could be the reason why its stock erased most of its gains on July 10.
Next, we’ll see how Tesla’s vehicles ruled the US electric vehicle segment in June.
As of July 10, Tesla’s forward EV-to-EBITDA multiple was 27.4x—based on the company’s estimated EBITDA for the next 12 months.
In the last month the CSI 300 is down 11.5%, much more than US indices.
JCPenney (JCP) is slated to announce its results for the first quarter of fiscal 2019, which ended on May 4, on May 21.
The key point of contention in the US-China trade dispute is the large trade deficit the United States runs against China.
On May 16, the Labor Department reported jobless claims for last week. Initial jobless claims fell by 16,000 to 212,000 for the week ended May 11.
Jeffrey Gundlach recommended investors take advantage of the volatility in interest rates at the recent Sohn Conference.
Tesla (TSLA) has fallen 4.2% as of 11:55 AM EDT on May 17. While US equity markets opened in the red today, they've recouped their losses.