Tesla (TSLA)’s electric vehicle business is booming, especially in China, as the world economy continues to reopen. Yet, as sales rise after the woes the coronavirus pandemic, so does skepticism over how much longer it can keep its momentum going.
In May, Tesla sold 11,364 electric cars in China, the highest monthly volume it had recorded in the world’s largest automobile market, according to vehicle registration data from China Automotive Information Net. The number was first reported by Bloomberg. Tesla’s entry-level Model 3 sedans, now locally manufactured at the Shanghai Gigafactory, made up for the vast majority of May deliveries, a proof that Tesla’s expensive China factory bet is paying off.
Part of Tesla’s May boom was thanks to a strong rebound in China’s overall automobile market. In May, the country’s total auto sales saw the first year-over-year growth in 11 months, partly offsetting the coronavirus-induced slump in January and February.
Yet, Tesla’s numbers were still remarkable considering that China broader electric vehicle market has been on a steep decline since the government scaled back on EV subsidies last year. In May, total deliveries of the so-called new energy vehicles, including electric cars, fell 26 percent, following a 30 percent drop in April and a 49 percent fall in March, according to the China Passenger Car Association (PCA).
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Tesla is currently the besting-selling electric car brand in China, accounting for about one-sixth of the country’s new energy vehicle market, running far ahead of competitors including Volkswagen, Daimler, General Motors and the homegrown Nio.
“Tesla outperformed all other domestic new-energy vehicle makers [in May],” the PCA’s Secretary General Cui Dongshu told reporters last week.
At home, Tesla is expected to see a similar rebound in May and June as the economy reopens, although we won’t know the specifics until the company reports second-quarter earnings next month.
That said, Wall Street’s forward-looking analysts are already concerned about Tesla’s near future, as they try to put the pandemic’s impact on production and the company’s recent price cuts into hard numbers.
On Friday, Morgan Stanley and Goldman Sachs both downgraded Tesla stock after it topped $1,000 for the first time last Wednesday, warning that its sky-high share price may not properly reflect risks, especially those arising in China.
“Among the many risks facing Tesla at this time, we would rank risks related to U.S.-China relations at the very top,” Morgan Stanley’s star analyst Adam Jonas wrote in a note to clients. He’s particularly concerned about China’s growing importance to Tesla’s global business, noting that China is expected to account for nearly a third of Tesla’s total sales in 2020 versus just 13 percent last year.
“We’d look to become more positive on Tesla stock again if we had more confidence in the near to intermediate term trajectory of fundamentals, or if valuation became more attractive,” Goldman Sachs analysts, led by Mark Delaney, wrote in a report on Friday.