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  1. Home
  2. / Investing
  3. / Stocks

Tesla's Surprise Announcement in China Anticipated for Friday

Tesla front-man Elon Musk could have a catalyst up his sleeve for Friday.
By KEVIN CURRAN May 29, 2019 | 10:58 AM EDT
Stocks quotes in this article: TSLA, NIO, BMCLF, VLKAF

Tesla (TSLA) has been teasing a big announcement on production in China that could provide a pivot in share action.

Shares of the electric automaker have been beaten down badly in recent months as the storm of a trade war, poor earnings, and consistent cash burn have ramped up short interest and courted caution from even bullish investors.

However, the company's actions on Chinese social media suggest Elon Musk has a trick left up his sleeve.

What we know on Wednesday morning is that the company will begin to accept pre-orders of its Gigafactory-made Model 3 on Friday.

"May 31, 2019 - Made in China Model 3 will open soon. Expecting to meet you," a post on the company's Weibo account states.

The domestically produced model is seen as a key catalyst because it will be cheaper to produce than the cars currently imported from the U.S. and will be able to skirt import tariffs that could have curbed demand in one of the fasting-growing EV markets in the world.

Electric car sales in China are expected to accelerate their already rapid growth in recent years, potentially reaching 1.6 million in 2019, according to China's Association of Automobile Manufacturers.

Chinese EV sales are taking off: 73,000 sold in April alone.
For reference, U.S. EV sales in April were 19,500 pic.twitter.com/Lgr0b4G8Cr

— Colin Mckerracher (@colinmckerrache) May 11, 2018

The main question is on the price, as the key aim of the Gigafactory in Shanghai was opening production to achieve a lower price point for Chinese consumers.

"Our car is just very expensive going into China. We've got import duties, we've got transport costs, we've got higher costs of labor here and we've never been eligible for any of the EV tax credits," CEO Elon Musk told analysts during the company's fourth-quarter earnings call. "In China, which is the biggest market for EVs, we've never had any subsidies or tax incentives for vehicles."

Now that the company is manufacturing its cars in China, it will be able to access such subsidies (while they last) and skirt the artificial trade tamps on its products.

As the company competes with established electric automakers like Nio Inc. (NIO) , the Warren Buffett-backed Build Your Dreams, BAIC Motor Corp. (BMCLF) , and a host of other international automakers, like Volkswagen (VLKAF) , eager to capitalize on the growing market, a competitive price point will be pivotal.

As of yet, Tesla is only catering to the luxury segment, with its models X, S, and 3 all charting among the most expensive EV models in the country.

"The demand for Model 3 is insanely high. The inhibitor is affordability," Musk concluded in the fourth-quarter call. "It's just that people literally don't have the money to buy the car. It's got nothing to do with desire. They just don't have enough money in the bank account...if we made it more affordable, the demand is extraordinary."

According to CNET, the company could increase demand substantially by undercutting its current cost on Model 3s by about $10,000. That should support demand in the long term, though there is some concern about when deliveries will become available based on pre-orders only being expected to begin on Friday. That could impact earnings for the second quarter, which many bulls are looking to as a rebound point from the recent stock trend.

Of course, it is still uncertain what the true surprise announcement will be, but the lean toward a pricing announcement that could bolster demand in the Chinese market would certainly be a welcome catalyst for the carmaker.

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TAGS: Regulation | Investing | Politics | Stocks | Automotive | Technology | China | Stock of the Day | Elon Musk | Warren Buffett

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