Tesla’s China Problem | Why Is Tesla’s Profit Margin Not Eliminating Its Competitors? | What Tesla’s Investors Should Know

Tesla has a wonderful start to 2023 in terms of its share price. From the bottom of USD108 on 3 Jan 23 to the Friday’s closing price of USD189 on 3 Feb 23, the share price has rocketed about 75%.

A big reason is Tesla’s beat on earnings that were reported on 25th Jan 2023.

While the gross margins fell to the lowest in the last five quarters due to the price cuts all around the world, CEO Elon Musk shared that the price cuts have sparked demand and they are seeing orders twice the rate of production.

Tesla’s shareholders are optimistic that Tesla’s higher profit margins will give it an edge over its competitors as well as eliminate them in recessionary times, as competitors go bankrupt due to poor sales and low profit margins.

In the below video, a financial YouTuber shared an interesting perspective on why Tesla may not be able to eliminate all its competitors, even with further price cuts on its car models.

This is because the Chinese EV makers are supported by the local government (地方政府), who will be pumping in money to keep these companies afloat, even if they are operating a loss.

The Chinese EV companies will attempt to gain market share and may even sell at a loss in order to achieve this goal. They later turn to the local government for fresh funding to sustain its cash flow and operations.

As such, Tesla’s higher profit margins and ability to slash car prices further may not give it the edge over its competitors, especially in China.

BYD is already outpacing Tesla in sales, selling 1.62 million cars between January and November 2022, compared to Tesla’s 1.37 for all of 2022.

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