KEY POINTS

  • Tesla will make its first deliveries of China-made cars on Monday
  • The company hopes to score big in the Chinese market, and could decrease prices to attract Chinese consumers
  • Chinese car sales have declined over the past year, but could pick up in 2020

Tesla (TSLA) is set to deliver its first Model 3 vehicles made in its China factory on Monday, a Tesla representative told Reuters. The representative said that the first Tesla deliveries will be made to employees of the electric vehicle company. 

Tesla’s expansion into China has numerous benefits for the company, along with some risks. Tesla’s factory in Shanghai began construction in January and is Tesla’s first factory outside of the United States. Tesla hopes to make 250,000 vehicles a year at the factory and has sought financing from Chinese banks to fund the venture, recently securing a $1.29 billion loan from banks for its China operations. 

One major advantage of the factory is that Tesla can better target Chinese consumers, with China being the biggest electric vehicle market in the world. By building Tesla vehicles on Chinese soil it can avoid costly import tariffs that China has imposed on U.S.-made goods. 

But a major problem could be China’s slowing automobile market, with overall car sales decreasing over the last 17 consecutive months. The decline in demand comes due to the U.S.-China trade war and a slowdown of the Chinese economy. China’s third-quarter growth for 2019 was the weakest in 27 years. 

Wang Hexu, a car industry analyst for China-based Hwabao Securities, said that while the Chinese car market has declined this year, it will pick up a little in 2020. 

Tesla CEO Elon Musk said that he may decrease prices of the Model 3 in China. Tesla also faces electric vehicle competition from other western companies in China, such as Volkswagen and BMW. 

It’s unclear whether Tesla will be able to successfully penetrate the Chinese market but shares of Teslas have rallied in recent days, a positive sign for the company. 

“2020 represents a pivotal year for Musk & Co. as ultimately this will be the year the bulls have been waiting for with China coming on board and Musk’s grand EV vision starts to take hold......or hits another stumble and the bears will come quickly out of hibernation mode heading into next year with the stock at new highs,” Wedbush Securities analyst Dan Ives said about Tesla’s business strategy in the new year. 

Tesla is also expanding in other countries, with Musk saying that Tesla would open another factory in Berlin, in order to target the German market. The German government has been expanding subsidies for consumers to buy electric vehicles.