Tesla sees most competition from China as it smashes legacy rivals with record profits

Tesla might have fallen short of some revenue projections – it sold $US81 billion ($A115 billion) of electric cars, batteries, solar panels and other products through the year – but it beat all expectations with a doubling in net income to $US12.6 billion ($A17.8 billion) for the calendar year.

The key to its success has been its gross margins – it makes an average profit of 25.7 per cent from every EV sold.

That’s a profit margin to die for, and the risk of many legacy car makers is that they might just die trying to match it, which is why Tesla sees little or no competition in its home market. But Chinese car makers are emerging as a potential threat.

“I do want to say, I think, we have a lot of respect for the car companies in China,” Tesla CEO and co-founder Elon Musk told the company’s fourth quarter earnings call.

“They are the most competitive in the world, that is our experience, and the Chinese market is the most competitive. They work the hardest and they work the smartest.

“A lot of respect for the China car companies that we are competing against. So If I were to guess (about future competition), it would probably be some company out of China, most likely, you know, to be second to Tesla,”

This is quite an interesting take and a body blow to the hopes of many legacy automotive companies, most of whom have been slow to adapt to the EV transition and can’t match Tesla on production costs.

According to Tesla, there doesn’t seem to be anyone in its home market that even comes close to EVs and autonomy in the US.

It also reflects a bit on the moves other vertically integrated EV companies in China have been making recently. 

BYD which had the third-best-selling EV, the Atto 3, in Australia last year appears to be in talks with Ford, one of the big automotive powerhouses, to acquire their factory in Europe over the next few years. 

Chinese EV makers have been finding entries into different markets including one of the most progressive in Europe. BYD is potentially starting the trend by not only having sales operations in Europe but now also having plans to acquire one of Ford’s German factories.

Like Tesla with the German, Berlin factory, BYD also has plans to produce its EVs locally in Europe for European customers. 

That will also be troublesome for many traditional European manufacturers who are already struggling to win market share in China as well as losing it in their home markets.

It should also be noted that every one of the 19,594 Tesla sales in Australia last year was made in China, and Musk mentioned the success that the Tesla China team are having:

“Tesla China team is winning in China, I think we are able to attract the best talent in China, so hopefully that continues, so super fired up about the future, it’s going to be great”

For Tesla, it was a quarter of maintaining industry-leading margins and finding ways to minimise costs internally. The automotive gross margin slightly shrunk to 25.9% but is by far the best in the automotive industry.

During 2022, Tesla grew by 40% and produced over 1.37 million EVs. In 2023, the company has a goal to produce 1.8 million units with an estimated production capacity of 2 million EVs.

One other key takeaway from the call was what the future lineup of products looks like. On the highly anticipated Cybertruck, the start of production remains on track for US summer this year while the ramp-up will occur in 2024. Hardware 4.0 was also bought up a couple of times with the Cybertruck being equipped with it. 

More announcements on future products and enhancements were reserved for the investor’s day that’s to follow in March – including the long hoped for low cost Tesla. Musk was asked about this possibility, given the strong margins, but batted the question away, saying it was something for the future.