Apple Inc AAPL and Tesla Inc TSLA are both increasingly dependent on China for generating revenues, the latest respective company earnings indicate.
What Happened: In the quarter ended March 2021, the Tim Cook-led company saw revenues rise in China more than from all other territories with the exception of the rest of Asia Pacific.
Cook said he was “very pleased” with Apple’s performance in China during the earnings call.
“We set a March quarter revenue record and grew strong double digits across each of the product categories.” The Apple CEO said that the company was “attracting some new customers in China, which is really important to us.”
A similar story is repeated across Tesla’s Q1 2021 numbers as well. Demand for Tesla’s vehicles — particularly the China-made Model Y — fueled the growth in revenue.
“We're making investments there [in China] ahead of the growth,” said Zachary Kirkhorn, Tesla’s Chief Financial Officer at the company’s earnings call.
“We’re trying to make sure that we are staying ahead of the volume so that we have the right sales capacity, store capacity there, local investments and IT and others to manage the growth," Kirkhorn added.
Why It Matters: Apple’s Greater China sales amounted to $17.7 billion as per Q2 2021 numbers released Wednesday. In the same period last year, that figure was $9.4 billion. This represents an 88.3% growth.
See Also: Apple's Q2 Results Exceed Expectations On Strong Product Momentum, Stellar Services Performance
China accounted for 19.8% of all sales in Q2 for Apple, while last year it accounted for 16.1% of all sales in the same period.
Tesla is even more reliant on revenues from China. Of the $10.4 billion total revenue for Q1 2021, $3 billion or 28.84% originated in China. Last year in the same period, $900 million out of a total $5.9 billion or 15.25% revenue had been sourced from China.
Comparatively, Tesla's derived $4.4 billion from the U.S. market in the period, which translates into 42.7% of total revenue. Last year in the same period it had raked in $2.8 billion from its home base or 47.45% of total revenue.
Tesla’s Model 3 and Model Y were among top-selling electric vehicles in China in February, but they face tough competition from local firms such as Nio Inc NIO, Xpeng Inc XPEV, and budget car makers like Wuling — a partnership between General Motors Company GM and state-owned SAIC Motor.
Apple too faces increasing competition from Chinese manufacturers. It was the second-largest smartphone manufacturer in the first quarter of 2021, as per a report from Strategy Analytics, and held 17% of the market share. The topper in the segment was Samsung Electronics Co. with a 23% market share.
However, China’s Xiaomi Corporation XIACF is creeping up and has garnered 15% of the market to take the third spot. Not only that, other Chinese manufacturers are ranked at no. 4 and no. 5 spots.
In December, the iPhone maker removed thousands of video games from its App Store in order to comply with Chinese government regulations and came under fire for bowing to the Communist country’s demands.
Another pitfall of reliance on the Chinese market is regulatory risk emanating from the U.S. Last year, former President Donald Trump issued an executive order banning U.S. companies from doing business with WeChat, a Tencent Holdings Limited TCEHY application
At the time, many Chinese fans of iPhones reconsidered their loyalties because should the ban have impacted the Chinese version of WeChat, the phones would have effectively be rendered useless given the domination of WeChat in the daily life of the people in China.
Tesla has had its own share of controversies in China. This month, a woman who claimed her family almost died in an accident involving a Tesla vehicle protested at the company’s booth at the Shanghai Auto Show.
See Also: Tesla Gives In To Chinese State-Run Media Pressure, Apologizes To Aggrieved Customer
Last month, China restricted military and state personnel use of Tesla vehicles citing national security concerns after suspicions were raised over car sensors’ ability to record images of surrounding locations.
The increased reliance on the Chinese market by western companies makes them vulnerable to upheavals — as can be illustrated by the recent Chinese government attack on the multinational clothing retailer H & M Hennes & Mauritz AB HMRZF for issuing a statement about its decision to stop sourcing cotton from the Xinjiang region after reports of forced labor in the area.
See Also: Tesla Apologizes To China State Power Company After Viral Video
H&M faced the wrath of the Communist Party of China organs such as the People’s Liberation Army and the Communist Youth League in wake of the controversy.
Price Action: On Wednesday, Apple shares rose 2.36% in the after-hours trading to $136.73, after closing 0.6% lower at $133.58 in the regular session. On the same day, Tesla shares closed nearly 1.5% lower at $694.10 in the regular session.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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