China To Shift From Auto Importer To Exporter, Says Morgan Stanley Analyst After Recent Tesla Price Cut

Morgan Stanley analyst Adam Jonas on Wednesday shed light on Tesla‘s TSLA recent price cuts in China and the trends impacting the Chinese EV market.

The Tesla Analyst: Jonas maintained an ‘equal-weight' rating on Tesla with a price target of $250.

The Changing Dynamics Of The Chinese Market: Earlier this week, Tesla cut prices for Model Y Long Range and Performance versions by CNY 14,000 (nearly $1,900) and announced a limited-time insurance subsidy for inventory Model 3 vehicles of CNY 8,000. According to Jonas, NEV promotions are now being deployed by EV makers including Nio and SAIC across China market amid subpar demand visibility and macro uncertainty. Morgan Stanley’s China Autos team also expects price competition in the geography to escalate further in the third quarter.

“In our view, China will shift from being an importer to exporter of cars as supply-demand dynamics invert this decade,” the analyst wrote, noting the country’s built-up excess capacity. As of the half-year end, China exported more vehicles than Japan.

OEM Efforts In China: Legacy automakers are now looking to collaborate with Chinese players to form ground in the country, including Volkswagen VWAGY with its XPeng XPEV collaboration and Audi with SAIC. Jonas, however, does not expect these collaborations to be a change driver in the market given the decelerating Chinese domestic market. Further, vertically integrated Chinese EV incumbents have already solidified their share with diverse product offerings, the analyst noted.

“Not only do legacy OEMs have to face tough EV competition in China from the likes of the vertically integrated and increasingly affordable EVs (i.e., Tesla and BYD), they also have to reverse the trend of decreasing sales volume, profit, and share in a decelerating domestic market,” Jonas wrote. Only players who demonstrate prudent capital allocation can see relative success, he added, while also wondering if current attempts at collaboration are too little or too late.

Tesla Price Action: TSLA shares closed down 2.8% at $219.22 on Thursday and fell 0.7% in after-hours trading, according to data from Benzinga Pro.

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