Tesla May Pass thru 'peak China' Dependency Stage over Next 12 Months, Says Morgan Stanley

A Tesla store in Foshan, China. Photo: Tesla

Tesla may be passing through its “peak China” dependency stage over the next 12 months, says Morgan Stanley. In its opinion, the remainder of the decade will see rapid industrialization of Tesla's NAFTA and EU supply chains, which will naturally dilute China's role in Tesla's supply and demand ecosystem.

Morgan Stanley reiterated an Overweight rating and $383 price target for Tesla shares, taking into account the study of the company's current position in China and its development prospects in other global markets. China is currently the world's largest automotive market, and the largest market for electric vehicles. The EV market in China was valued at $124.2 billion in 2021 and is expected to grow to $799 billion in 2027, according to Mordor Intelligence, per investing.com.

China currently accounts for 62% of total global electric vehicle sales. Tesla's market share in the country is about 9%. Model Y is extremely popular in China. The car is the best-selling in the premium SUV segment and claims to be the top seller among all luxury models.

Morgan Stanley analyst Adam Jonas believes that the company may be passing through its “peak China” dependency stage over the next 12 months. Tesla is the leader in the Chinese electric vehicle market, but due to growing competition, it is strengthening its position there. The Chinese automotive team of Morgan Stanley reports that the automaker has begun offering a $1,140 subsidy to customers who already have a booking on Model 3 or Model Y, which is only available to customers who purchase Tesla insurance and is available from September 16 to 30. Such a move is extremely common in the Chinese automotive market, so it should not come as a surprise.

The analyst wrote in a note: “In our view, the remainder of the decade will see a rapid industrialization of Tesla's NAFTA and EU supply chains to achieve compliance with programs such as the IRA (and potential EU equivalent) which will drive a natural dilution of the role of China in Tesla's demand footprint and supply ecosystem.”

© 2022, Eva Fox | Tesmanian. All rights reserved.

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