Billionaire investor Ron Baron talked about TSLA stock in an interview with CNBC after Tesla (NASDAQ: TSLA) reported 2024’s Q1 earnings. In the interview, he discussed the advantages that Tesla has over other automakers, including the fact that EVs will win over hybrids because it costs less to make an EV than a hybrid car. With that being said, one automaker that’s currently winning big on hybrids is Tesla’s main rival, China’s BYD (OTCMKTS: BYDDF), and it even sold more hybrids than it did EVs last quarter.
Now, Tesla is on a mission to prove that EVs are the future, and it’s kicking this mission off in BYD’s hometurf. In fact, Elon Musk visited China last week, and this visit unlocked more opportunities for Tesla as he met with senior Chinese officials in Beijing in order to get approval to roll-out FSD in the country. However, with the rising tensions between the U.S. and China, many are wondering if this roll-out will be a successful one.
Why China for Tesla’s FSD?
Since 2021, Tesla has stored all data collected by its Chinese fleet in Shanghai, which is home to Tesla’s largest factory globally. This act was required by Chinese regulators and this data was never transferred back to the United States. Tesla’s FSD was already rolled out four years ago but it wasn’t available in China. This year, Musk decided to make their wish come true. Musk said earlier this month that Tesla may make FSD available to customers in China “very soon”, in response to a query on Twitter.
According to experts, China’s complicated traffic conditions with more pedestrians and cyclists than in any other countries provide more scenarios that are key for training autonomous driving algorithms at a faster pace, which would help Tesla solidify its position as the global autonomous driving leader. That’s why China is a perfect country to launch FSD in.
Competition in China
Tesla won’t be the first to implement self-driving cars in China, as there’s already fierce competition from companies like XPeng (NYSE: XPEV) and BYD. In February, XPeng announced that it has reached a massive milestone as it introduced a feature that enables self-driving in several scenarios with their XPeng navigation guided pilot (NGP) available unlimitedly on all roads, and basically everywhere in China.
On top of that, we also have Tesla’s main competitor, BYD, also entering the self-driving space with Nvidia’s (NASDAQ: NVDA) help, as the chipmaker announced in its most recent GTC event that it’ll be selling its next-generation chips to BYD to enable increased levels of autonomous driving and other digital functions in its vehicles. Also, the in-vehicle chips, known as Drive Thor, will be able to power a wide-range of automotives including new energy vehicles, Robotaxis and Robobuses and it is set to be in BYD vehicles next year.
Even though these two prominent players in the Chinese market have the backing of the Chinese government, Chinese officials still approved FSD in China. According to the Wall Street Journal, Chinese officials have given the green light on Tesla’s plan to introduce its FSD feature in the country, and that came after Tesla launched enhanced Autopilot monthly subscriptions in China for around $99, which is the same price as an FSD subscription in the U.S..
Tesla can now guarantee a consistent extra revenue each month with the introduction of Autopilot monthly subscriptions. For instance, last year, Tesla sold approximately 600,000 vehicles in China, so if at least 10% of them subscribed to Autopilot each month, that would be 60,000 vehicles and since the subscription is $99 per month, that’s an extra $5.9 million in extra revenue for Tesla. Additionally, with the introduction of FSD in China, Tesla China’s revenue could skyrocket from these two services.
TSLA Stock Forecast
The Tesla turnaround has just begun, and it became very obvious over the last week with how the company’s stock performed, both before and after the earnings call. On top of that, we have seen how TSLA stock soared after the company received China’s approval on FSD, as it went up 15.3% on Monday and reached $194.05.
However, there’s a great reason why TSLA stock has been soaring lately, as it has to do with the company’s position in China and the EV market, but it’s actually so overlooked and no one is talking about it. Many investors think that TSLA stock soared thanks to the news of lower priced models and Robotaxis, and while these definitely contributed, investors are missing one other big thing. During the earnings call, Tesla’s management team said that the company produced roughly 1.8 million vehicles in 2023, yet it had a 3 million vehicle capacity, which leaves room for 1.2 million units of growth without needing to add new manufacturing capacity.
This was great news for Tesla investors, and this becomes obvious when you consider the fact that the EV industry, especially in China, is currently experiencing an oversupply with decreased demand, which is why Tesla is forced to cut prices, and why many automakers in China have factories filled with cars that they can’t even sell. If an EV company has too much manufacturing capacity, it’ll continue to struggle with the oversupply problem, which is why Tesla bringing down its manufacturing capacity is actually a good thing for the company and TSLA stock investors. Tesla realized that current consumer demand for EVs is not that strong, and when compared to the supply that’s available in the market, there’s a massive mismatch. As a result, it reduced its expansion plans, and other car companies did that as well, like Rivian (NASDAQ: RIVN), Ford (NYSE: F), and GM (NYSE: GM).
What’s even better is that Tesla can increase the number of vehicles it manufactures by introducing the new affordable models, which will not be contingent upon any new factory or massive new production line. Instead, they will be made on the current production lines, which will contribute to saving a couple of billions of dollars in spending on expansions.
This will definitely help Tesla in the tough Chinese market, where supply is very extensive. Now, combine this with the fact that Tesla launched FSD in China, and you would understand the company’s massive opportunities in the Chinese market, and how everything that’s happening in China right now could be one of the greatest TSLA stock catalysts for this year.
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