Desperate survival Musk pushes Tesla China to build a factory.

　　[News] is a company that never lacks exposure. Any sound about Tesla is the focus of the automotive media, and even occupies the headline position from time to time. In the first half of 2018, Tesla’s exposure seems to have been raised to a higher level, and unfortunately, most of them are bad news. News about mass production bottlenecks, crazy money burning, executives leaving, and massive layoffs is endless. Some analysts even predict that Tesla will not survive this year.

　　Fortunately, at the beginning of the second half of 2018, Tesla finally ushered in two good news. On July 1, Tesla announced that it had delivered 5,000 vehicles per week, reaching the previous planning goal. On July 10th, Tesla signed an investment agreement with Shanghai Lingang Management Committee and Lingang Group for the pure electric vehicle project, planning to invest in the construction of a super factory with an annual production capacity of 500,000 vehicles, which means that Tesla’s localized production in China has gone further.

　　Can solving the delivery dilemma and realizing local production in China help Tesla get out of the predicament? This article will combine Tesla’s current situation to do one or two interpretations.

Read the full text in 30 seconds:

1. Tesla, which has been negative since the first half of 2018, urgently needs to boost investor confidence by realizing profitability. Musk is ensuring Tesla to achieve profitability in the third quarter of this year by solving the delivery dilemma and mass layoffs.

2. Realizing the landing of China factory is the most important card in Musk’s hand, and now this card is playing a positive role. However, China’s new management policy on investment in the automobile industry has not yet been finalized, and the tension caused by the Sino-US trade war makes it uncertain when Tesla can truly localize production.

3. In addition to the delivery dilemma, burning money crazily and the uncertainty of China’s localized production, Tesla is currently facing multi-dimensional challenges, including the departure of the core senior management team, the challenges of traditional and new car companies, and the substantial increase of import tariffs on Tesla China under the background of Sino-US trade war.

　　■ Profitability is Tesla’s most urgent thing at present.

　　Tesla was founded in 2003, and in the development history of nearly 15 years, it only achieved profitability in two quarters. In 2017, Tesla lost as much as $2.2 billion, setting the highest annual loss. Crazy burning of money and sustained losses are becoming one of the main reasons why airdrop organizations look down on Tesla.

　　The key to the profitability of automobile enterprises lies in large-scale production, so as to amortize the previous research and development costs, production equipment costs and staff costs. It is generally believed in the industry that a car with a production quantity of more than 100,000 vehicles is considered as large-scale production and can achieve profitability. Up to now, Tesla has sold four models:,, and Model 3. In 2017, Tesla delivered a total of 103,181 products, of which Roadster stopped selling in 2012 and delivered the remaining three models. It can be seen that Tesla’s average annual sales of each model is less than 35,000 units, which is still far from achieving profitability.

　　Model 3 is Tesla’s most profitable model. According to the official news of Tesla, as of the end of the second quarter of this year, Tesla delivered 28,386 Model 3s, and the remaining number of reservations was about 420,000. Tesla had planned to mass-produce 5,000 Model 3 vehicles per week by the end of 2017. At this speed, Model 3 will achieve the annual delivery target of 260,000 vehicles. If these products can be successfully delivered, Tesla will turn losses into profits in one fell swoop.

　　However, the ideal is full, but the reality is skinny. The mass production planning of Model 3 was not as smooth as expected, and the goal of 5000 vehicles/week dived more than once, which was delayed until the end of June this year. On July 1st, Musk announced on Twitter that he had achieved a production of 7,000 vehicles/week, including 5,031 Model 3s.

　　However, some analysts pointed out that Tesla’s output of 7,000 vehicles/week was unsustainable, which was barely completed by forcing employees to work overtime for 6*12 hours and setting up a temporary production line in tents. Tesla did not fundamentally solve the mass production capacity of Model 3. More foreign media accused Tesla of meeting the delivery target at the expense of product quality, saying that it omitted the "braking and rolling" test link of Model 3.

　　Whether the delivery target can be achieved is closely related to Tesla’s profit. At present, Musk is taking this goal very seriously. In addition to nervously pushing the delivery target, Musk also decided to lay off about 9% of employees and strive to achieve profitability in the third quarter of this year.

　　Musk has repeatedly stressed that Tesla has no further financing needs, so why is this year’s profit so important? According to Bloomberg analysis, Tesla is losing money at a rate of $6,500 per minute. Without a new round of financing, Tesla will go bankrupt at the end of August this year. Goldman Sachs also predicts that by 2020, Tesla will need to raise $10 billion to continue its development. Tesla is not without financing needs, but Musk needs to refinance at a high premium.

　　Long-term losses have also put Musk’s own situation in jeopardy. According to foreign media reports on April 27, Tesla’s shareholders have proposed that the board of directors nominate an independent chairman to replace Musk. It can be seen that it is very important for Tesla and Musk to achieve profitability within this year.

　　■ The establishment of a factory in China brings benefits and uncertainties.

　　China is the country with the largest automobile market and the largest driving force for new energy vehicles, which is undoubtedly an "ideal city" for Tesla’s global development. Tesla has always had the idea of building an independent factory in China. However, due to the previous management policy of China’s automobile industry, the shareholding ratio of foreign-funded factories in China should not be higher than 50%, and Tesla’s plan to land in China has been delayed so far. On June 28 this year, the National Development and Reform Commission and the Ministry of Commerce officially promulgated the Special Administrative Measures for Foreign Investment Access (Negative List) (2018 Edition), announcing that new energy automobile joint ventures will no longer limit the share ratio from this year.

　　The relaxation of the policy has brought opportunities to Tesla’s demand for wholly-owned factories in China. On June 6th, Musk announced at Tesla’s 2018 shareholders’ meeting that Tesla will build a factory in Shanghai, China, with the name Dreadnought, which will produce power batteries and assemble complete vehicles at the same time. Dreadnought will be Tesla’s first factory outside the United States.

　　Negative-ridden Tesla urgently needs some "positive energy" to boost investor confidence. On July 10th, Musk personally visited Shanghai and signed an investment agreement with relevant departments in Shanghai to promote the localized production of Tesla China. According to the plan, Tesla’s annual output of 500,000 pure electric vehicles will land in Shanghai Lingang District, which is the largest foreign-funded manufacturing project in Shanghai and the first wholly foreign-owned car-making project in China, which is undoubtedly good news for Tesla.

　　However, this does not mean that Tesla has landed in China. According to informed sources, the two sides signed only a memorandum of cooperation, and the specific details have not yet been finalized. This is only the first step for Tesla to establish a factory in China and realize local production. After that, Tesla will also apply for the approval of car-making projects like China’s new car-making enterprises, and then formally apply for the qualification of car-making.

　　At present, the management of electric vehicle qualification examination and approval in China is becoming stricter, and the relevant policies are still in the stage of soliciting opinions. At the same time, the local new car-making enterprises in China have long queued up. Take the cars that have also built factories in Shanghai as an example. At present, our production is based on automobile qualification, and Weilai Automobile also hopes to solve the qualification problem by building factories in Shanghai. Whether there is a conflict between Tesla and Weilai in obtaining qualifications, and how the Shanghai municipal government will choose, is still unknown. As far as the progress of obtaining qualifications is concerned, it may take some time for Tesla, and it may be after 2020 when the factory is officially put into production.

　　This time, Tesla plans to build a car-making project with an annual production capacity of 500,000 vehicles, and the production capacity planning has surpassed that of all new car-making enterprises in China. In the new draft of the investment policy for the automobile industry, it is required that the project construction scale should be above the bottom line of 100,000 vehicles per year, without setting an upper limit. However, under the background of the country’s overall control of automobile production capacity and prevention of overcapacity, it seems that there is little hope to approve the production capacity of 500,000 vehicles to Tesla at one time. From Tesla’s own point of view, Tesla delivered just over 100,000 vehicles in 2017. In contrast, the annual production capacity planning of 500,000 vehicles is more like a long-term goal.

　　■ Tesla also faces multidimensional challenges.

　　Brain drain

　　Mass production and profitability are the core issues facing Tesla. In addition, the frequent departure of executives is also a bad sign for Tesla. In the first half of this year, nearly 10 executives have left Tesla, including the chief financial officer, global sales and service, and vice president of autonomous driving.

　　The employees of an enterprise are often the people who know the living conditions of the enterprise best, and the sharp brain drain means that the employees are anxious and distrustful of the development prospects of the enterprise. In addition, talent is often the core competitiveness of an enterprise. Tesla is facing the loss of executives in many fields. Even if the mass production problem is solved in the future, the absence of core management will cast a shadow over Tesla’s future development.

　　Competition in electric vehicle market intensifies.

　　In addition to the internal challenges, Tesla’s pressure also comes from the transformation of traditional car companies and the rise of new car companies. Just at the beginning of the month, when Musk showed off 7,000 weekly mass production results on twitter, Steven Armstrong, CEO of Europe, sneered that it only took Ford four hours to produce 7,000 products.

　　In the field of electric vehicles, Tesla is undoubtedly a brave pioneer, because it doesn’t have a huge and heavy business system like traditional car companies, and there is no burden of sweet profit cakes for fuel vehicles. Tesla travels lightly and simply, breaking the high barriers of the traditional automobile industry and entering the vision of traditional automobile giants as an intruder.

　　Although Tesla has made some achievements in the field of electric vehicles, traditional car companies are not convinced. Traditional car companies believe that Tesla is not lost in technology and production, but it has not yet been laid out. Subject to the huge scale system, traditional car companies should be cautious every time they turn around and make every decision. However, driven by the transformation of automobile electrification represented by China market, it is the general trend to develop more energy-saving automobile products, otherwise it will face severe administrative, fiscal and taxation penalties.

　　In this context, traditional car companies at home and abroad have begun to lay out electric vehicle products in succession, covering almost all high, medium and low strains. In the long run, Tesla’s unique situation in the field of electric vehicles will be ended.

　　Internationally, almost all traditional car companies, such as,, and so on, have started to market electric vehicle products one after another. Audi’s first pure electric Audi e-tron production version is expected to be officially released in August this year, with a price of $96,000, which is against the Tesla Model X P100D. As early as February 2011, BMW put forward the I series brand strategy, which represents the layout of BMW Group in the field of electric vehicles, and has mass-produced two products and. Mercedes-Benz also launched the electric vehicle sub-brand EQ in 2016.

　　China brand electric vehicles start from the low end, which is not at the level of competition with Tesla. However, China brand has also begun to explore the upward development path of the brand. In April 2018, SAIC launched the Marvel X, an electric supercar, with the intention of benchmarking Tesla. In addition, Geely’s and its brands have launched plug-in models, and plans to launch high-performance electric vehicles in the future. At the same time, new car-making enterprises such as Weilai and Baiteng have appeared in the China market, and these enterprises take Tesla as an example, hoping to build electric smart cars that can compete with Tesla.

　　Import tariff increase

　　China is Tesla’s second largest market. In 2017, Tesla’s total revenue was $11.76 billion, and China’s market revenue was $2.03 billion. According to the average selling price, Tesla should sell more than 20,000 electric vehicles in the China market in 2017, accounting for about 20% of the annual sales.

　　In the context of the Sino-US trade war, on June 16th, the State Council Customs Tariff Commission issued an announcement, deciding to impose a 25% tariff on 659 imported goods originating in the United States, of which the tariff adjustment on automobiles will be implemented from July 6th, 2018. This means that Tesla’s import tariff has been raised from the initial 15% to 40% since July 6. The prices of all Tesla products have increased, with the largest increase exceeding 260,000 yuan.

　　Full text summary:Although Tesla has been negative recently, it is still the most potential enterprise and the most promising enterprise among Chinese and foreign emerging car-making enterprises. The problems encountered by Tesla are difficult for all emerging car manufacturers to completely avoid. Intelligent electric vehicles represented by Tesla are bound to be the development trend of automobile products in the future. Whether mass production can be successfully solved, profitability can be realized, and whether local production can be successfully realized in China are the most critical steps for Tesla. Solving many problems will win more time and capital for Tesla. (Text/car home Xiao Ying)