China fuels both supply and demand for Tesla’s record Q3 earnings
Tesla announced record third-quarter results on Wednesday, reporting a 389% rise in profit over the same period last year to $1.6 billion, and once again China proved to be the not-so-secret weapon driving the electric-vehicle maker’s continued success.
“For all of Q3, China remained our main export hub,” chief financial officer Zachary Kirkhorn said in Wednesday’s earnings call. “Production has ramped well in China, and we are driving improvements to increase the production rate further.”
During the company’s annual shareholders meeting earlier this month, Tesla CEO Elon Musk said the automaker’s Shanghai gigafactory had become the company’s largest manufacturing site by output, outshining the EV maker’s flagship factory in Fremont, Calif.
According to the China Passenger Car Association (CPCA), Tesla shipped 133,238 vehicles from its factory in Shanghai during the third quarter this year. Some 60,000 of those units were exported—mostly to Europe, where Tesla has just completed construction on its manufacturing site in Berlin. The Berlin plant is slated to begin production in November or December this year.
Lower labor costs in China have allowed Tesla to ramp up production at the Shanghai plant while also cutting the cost of its vehicles in the domestic Chinese market, to compete against local rivals. Chinese demand for Tesla vehicles has remained strong, despite the brand suffering a slew of bad press and safety scandals in the country.
In April, a dissatisfied customer climbed on top of a Tesla during the Shanghai Auto Show to protest an alleged brake failure in her father’s Tesla. The company’s poor response to the complaint evoked a backlash from state media and regulators, forcing Tesla to apologize and amend its business practices.
That dose of humility has paid off. In September, Tesla rolled a record 56,006 units out of its Shanghai factory, with most of the vehicles destined for domestic buyers.
On Wednesday, Tesla also announced it would shift to using cheaper lithium iron phosphate (LFP) batteries in production of its standard-range vehicles globally, having trialed use of the LFP battery extensively in China. Tesla previously used batteries made from nickel and cobalt, but prices of those materials are spiking, and supply is scarce.
Switching to LFP batteries will help Tesla avoid the waning supply of nickel and cobalt but will also solidify the company’s reliance on an ecosystem of Chinese suppliers. According to consultancy Roskill, China manufactures 95% of all LFP batteries, with Contemporary Amperex Technology dominating the field.
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