Tesla Is Still Under Big Pressure

It’s not every day you hear the CEO of a major corporation admitting defeat…

But that’s basically what Elon Musk did during electric-vehicle (“EV”) maker Tesla’s (TSLA) fourth-quarter earnings call last week.

Musk told investors that Chinese EV manufacturers would crush their global competition without the help of tariffs. As he said on the call…

If there are no trade barriers established, they will pretty much demolish most other car companies in the world.

That’s a rough assessment of the U.S. car industry, considering it comes from the head of the company that sells six out of every 10 EVs in the country.

And Musk is in a good position to make this prediction…

Tesla’s Shanghai Gigafactory produces and sells more EVs than any of the company’s other factories across the globe. Last year, it delivered 947,000 vehicles. That’s good for 52% of the company’s global total.

But even Tesla could only churn out about half the number of vehicles that its main competitor, China-based BYD, sold last year.

A handful of other Chinese EV brands are also nipping at Tesla’s heels. And late last year, consumer-electronics giants Xiaomi and Huawei both joined the field with flagship models that made Tesla’s cars look dated.

Here’s the thing…

China welcomed Tesla with open arms. It allowed the company to import cars into the country 10 years ago and to set up a manufacturing plant in 2019.

Many folks say China just wanted to steal technology or copy Western design.

But what’s clear is that the Chinese government wanted to pit the country’s homegrown brands against what it saw as the best in the world. And what company is better for an aspiring EV brand to try to measure up to than Tesla?

To level the playing field, the Chinese government allowed Tesla access to the same incentives that it gave domestic companies like BYD.

Coming back to Musk’s comments, his warning to the U.S. auto industry isn’t him being an alarmist. He’s being realistic.

Otherwise, if Chinese brands were merely shipping out piles of electrified junk into the streets, he wouldn’t be saying this at all.

It’s also not as if Chinese car brands are unknown to the rest of the world…

While most Americans have never seen a Chinese-made car in person, people living in Asia, Europe, the Middle East, and Africa have.

The numbers speak for themselves. China overtook Japan as the world’s largest car exporter last year after shipping close to 5 million vehicles. And nearly 40% of those were EVs.

Folks, I’m not trying to convince you to go buy a Chinese-made EV.

And even if I were, the likelihood of you being able to buy one in the U.S. is low. They just cost too much to import right now.

Any Chinese-made car imported into the U.S. already faces a stiff 25% tax. And President Joe Biden is proposing to increase that this year.

So at least for now, Tesla’s leading position is safe in its home market.

But in every other corner of the world, Chinese brands are fast becoming mainstream – if they aren’t already.

They boast quality and affordability. And those are two things consumers love, especially in these inflationary times.

That means trouble for Tesla in markets where it generates 50% of its business.

And here at Chaikin Analytics, the Power Gauge caught wind of the increasing pressure that Tesla was under at the beginning of the year.

As I said earlier this month, it turned “bearish” on Tesla on January 3. Our system was telling us that the “smart money” was getting out.

In the following weeks, Tesla’s stock went on to fall as much as 23%. Take a look at the steep drop…

Now, I should note that Tesla’s rating in the Power Gauge has recently improved to “neutral.” But as I explained today, the company is still under pressure.

I said it earlier this month, and I’ll say it again. Tesla’s stock still doesn’t look like a good place to put money to work today.

Meanwhile, there’s no getting around the fact that Musk built the company into America’s leading EV manufacturer. So, as I also said earlier this month, I’ll continue watching Tesla closely.

Good investing,

Vic Lederman

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