x Abu Dhabi, UAEFriday 21 July 2017

Tesla targets China subsidies

China confirmed this week that electric-vehicle incentives will be higher this year than previously announced as part of efforts to curb worsening air pollution.

US electric carmaker Tesla Motors, which is just starting to sell vehicles in China, wants its Model S to qualify for China’s electric car subsidies. Kim Kyung-Hoon / Reuters
US electric carmaker Tesla Motors, which is just starting to sell vehicles in China, wants its Model S to qualify for China’s electric car subsidies. Kim Kyung-Hoon / Reuters

Tesla Motors, the youngest and smallest publicly traded US car maker, wants its Model S to qualify for China’s electric car subsidies that the government said will remain more valuable than initially planned.

Ben Kallo of Robert W Baird & Co and Craig Irwin at Wedbush Securities say China’s extension of incentives, which Tesla’s car does not get as a US import, nevertheless creates favourable conditions ahead of the start of Model S sales next month.

“We understand we don’t qualify for direct subsidies,” says Diarmuid O’Connell, Tesla’s vice president of business development.

“We’re hoping the government will consider the role Tesla can have in catalysing electric vehicle adoption in China and extend those incentives to Model S as well.”

Tesla, which quadrupled in value last year, began rising again last month after the company said its shipments of Model S saloons in the fourth quarter of last year and revenue were 20 per cent higher than it had expected.

The founder and chief executive Elon Musk also said last month China, where sales begin next month, may match US volume as early as next year.

The 10-year-old car maker named for the inventor Nikola Tesla has a market capitalisation of about US$24.1 billion, just behind France’s Renault, at $25.5bn and ahead of South Korea’s Kia Motors’ $20.4bn market value.

Mr Musk and JB Straubel, Tesla’s chief technical officer, briefed customers in Europe this month about plans for the Model S and Model X crossover, and its strategy for China is being well received, says Mr Kallo, who rates the shares outperform.

“All the news following around Elon and JB Straubel kind of got it started, and all the positive news in China is also having a positive impact.”

China confirmed this week that electric-vehicle incentives will be higher this year than previously announced as part of efforts to curb worsening air pollution.

Subsidies are being cut by only 5 per cent this year, instead of an initial 10 per cent target, and will be further decreased by 10 per cent in 2015 instead of 20 per cent, China’s finance ministry said in a joint statement with the national development and reform commission, technology and industry ministries.

“The better than expected change in Chinese EV [electric vehicle] subsidies is helping the stock,” says Mr Irwin, who rates Tesla outperfrom. “This doesn’t fundamentally impact Tesla, given they are not eligible for the subsidies yet, but is a headline positive.”

Tesla’s Model S will be priced from 734,000 yuan (Dh444,871) in China when deliveries begin, the company has said. That is about 50 per cent higher than the US price to cover shipping costs, taxes and import duties that run as much as 25 per cent, Mr Musk said.

The company is scheduled to release fourth-quarter financial results on February 19. Analysts on average estimate the company will post a profit, excluding some costs, of 18 cents a share, according to data compiled by Bloomberg. The net loss may narrow to $2.4 million, while sales may more than double to $668.6m.

Meanwhile, Toyota said yesterday it is recalling 1.9 million hybrid Prius cars globally – more than half of the total built so far – for a software glitch that could cause the vehicle to stall.

Toyota said 997,000 Prius cars in Japan, some 713,000 in North America, another 130,000 in Europe and the rest in other regions are being recalled for a problem in the software that is used to control the hybrid system.

No accidents or injuries have been reported related to the problem.

The software could cause transistors to become damaged, causing warnings lights to go off, driving power to be reduced or the car to stop. The recalled vehicles were manufactured between March 2009 and this month.

The Japanese car maker suffered enormous recalls starting in 2009, affecting more than 14 million vehicles for problems including floor mats, accelerator pedals and brakes.

In the non-electric vehicle segment, General Motors, which lost its title as China’s largest foreign car maker last year, said deliveries rose 12 per cent in its biggest market on demand for Buick and Wuling vehicles.

Total sales rose to a record 348,061 units in China last month, the Detroit-based company said this week. Buick monthly deliveries gained 16 per cent to surpass 100,000 units for the first time, led by the Excelle line, according to GM.

The company, overtaken by Volkswagen in China last year, plans to spend $11bn through 2016 to expand in the world’s largest car market, with four new assembly plants boosting annual capacity to 5 million vehicles.

The car maker is under new local leadership, with Matthew Tsien taking over this year as the head of China operations from Bob Socia, who retired.

SAIC-GM-Wuling, which produces Wuling and Baojun vehicles, is introducing a compact hatchback and a new multi-purpose vehicle under the Baojun brand, along with a 4x4 in 2015, Raymond Bierzynski, its executive vice president, said in November.

GM announced plans in April to introduce nine 4x4 models in China over the next five years to capitalise on increasing demand.