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With fierce market competition and frequent safety accidents, where does Tesla go in the future?

Apr 29, 2021

Tesla (tsla. US) will announce the first quarter results of 2021 in the morning of April 27, Beijing time.


Since its share price surged more than 700% last year, Tesla has risen only 3.4% in 2021. Meme concept stocks such as gme.us have pushed Tesla out of the limelight, while bitcoin has attracted almost all market attention.


But the electric car giant's upcoming first quarter results could change that.


Since Tesla released its strong delivery data for the first three months of this year, market expectations have become higher and higher. At the same time, the company's Shanghai plant recently increased production of model 3, while the model y made in China has started delivery in January 2021. According to the data, the company delivered 184800 vehicles in the first quarter, a record. Among them, the delivery volume of model 3 / y is 182780, and that of model s / X is 2020. The quarterly output is 180338 vehicles.


In response, the market generally expects that the company's non GAAP earnings per share will reach 79 cents, compared with 23 cents in the same period last year; Revenue is expected to be $10.29 billion, up 72% year on year. Analysts surveyed by Zacks investment research expect the company's earnings per share to be $0.79, up 216% year on year. Revenue is expected to grow 66% year-on-year to reach US $9.92 billion.


However, in an increasingly competitive market environment, Tesla still needs to prove that it can maintain its leading position. "We recognize that Tesla has shaken the automotive industry, but the recent commitment and progress of existing automakers such as Volkswagen and General Motors (gm.us) show us that Tesla's market share in the field of electric vehicles has reached its peak," said Jeffrey Osborne, an analyst at Cowen.


Risks brought by market competition


Traditional automobile manufacturers in the United States and Europe have announced their ambitions to enter the electric vehicle market this year, from ordinary cars to SUVs and luxury super sports cars. Although Tesla has significant advantages over its competitors in technology, software and brand awareness, its position may begin to decline rapidly as more and more competitors join the competition.


"Tesla sees itself as the leader in the sustainable advancement of phased change in industrialization and fossil fuel transition," Morgan Stanley analyst Adam Jonas wrote in a report However, Tesla still needs to address the issue of sustainable sources around battery manufacturing and supply chains, the analyst added.


Jonas said Tesla's top priority is to expand its production capacity and "industrialize its leadership" before the market competition becomes more intense.


Investors also expect more details about Tesla cybertruck and semi, factories in Germany and Austin, Texas, and any clues about how Tesla's demand has changed this year. Tesla has not yet provided delivery targets for 2021, although the company has hinted that it will target about 750000 vehicles. Zach kirkhorn, Tesla's chief financial officer, said in a financial reporting conference last quarter that the company's target is to achieve a compound annual growth rate of 50 per cent of sales, which is expected to exceed the target substantially in 2021.


There is also a risk, of course, that as more and more traditional automakers produce electric vehicles, the regulatory lines of credit they need to buy from Tesla will continue to decline. This may affect Tesla's source of revenue. Although this part of revenue accounts for a small proportion, because there are no related costs, this part of revenue often affects the profit change in a disproportionate way.


"Even in the first year of profitability in 2020, Tesla's adjusted pre tax profit is still lower than its revenue in regulatory credit," said Kevin Tynan, an intelligence analyst at Bloomberg. Ironically, despite the hype of electric vehicles, traditional car manufacturers make a lot of money by selling internal combustion engines, which makes Tesla look profitable in this regard. "


Finally, considering that Tesla's gross profit margin fell from 27.7% to 24.1% in the last quarter, its profit margin is expected to continue to slow down. This may be due to the fact that the new model s and model X are in the early stage of increasing production.


Security issues are controversial


Aside from the important financial factors, the model s fatal crash in Texas in the near future will inevitably receive some response at the financial reporting conference call. Relevant media reports pointed out that the time of the accident, the vehicle seems to be driverless, relevant investigators have begun to investigate the accident. In this regard, analysts will try to analyze the cause of the accident and whether the company's driving aid system autopilot is related to the accident.

In addition, in the Chinese market, Tesla is also facing the rights of car owners. Tesla has responded that the accident was caused by speeding. However, the incident is still fermenting and the company is under pressure from the market and is required to respond more positively to the complaints.

In response, Adam Jonas said the company was facing "anti Tesla sentiment" in China. The analyst believes that the Chinese market actually accounts for the majority of Tesla's current profits.


"However, we expect Tesla's position in the Chinese market to decline significantly over the next decade, driven by fierce competition and the development of local enterprises," Jonas said

The analyst predicted that Tesla's market share in China will reach about 15% by 2021; By 2030, the company's annual sales in the Chinese market will reach 743000 vehicles, accounting for less than 7%.

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