The China Passenger Car Association (CPAC) said Tesla sold 677,695 cars over the month of May, an 2.4% increase from the previous month and 142% higher than the same period last year, when Tesla’s Shanghai gigafactory was still under severe Covid restrictions.
Tesla’s Shanghai factory, in fact, produced more than half of its global output last year, and China remains a critical component to Musk’s plans to boost overall Tesla production closer to 2 million vehicles a year in 2023. However, increased competition and an uneven economic recovery from the country’s zero-Covid health policies have blunted sales, lifted costs and narrowed profit margins for the world’s biggest EV maker.
China’s EV sales could accelerate further into the summer months, as well, after state media reports suggested last week that the government would extend tax breaks for the purchase of so-called ‘new energy’ vehicles.
The CPAC data also follows a three-day visit to Beijing and Shanghai by Tesla CEO Elon Musk last week, which included meetings with the country’s foreign, commerce and industry ministers. China’s Foreign Ministry issued a statement prior to their private meeting saying the Tesla CEO, as well as other business leaders, would promote “mutually beneficial cooperation” with the government.
Tesla shares were marked 1.72% higher in pre-market trading to indicate an opening bell price of $217.64 each, a move that extends the stock’s year-to-date gain to around 76.6%.
.Musk warned investors in late April that Tesla would likely focus on growing sales volumes and extending its lead in key markets over improving profitability. He justified that as a necessary step in its plan to generate recurring revenue, and longer-term earnings growth, from automated-vehicle sales over the coming years.
Tesla posted its thinnest quarterly profit margins in more than two years, linked in part to its relentless 2023 price cuts, with earnings falling 21% from a year earlier to 85 cents a share on revenue of $23.33 billion.
Adjusted automotive margins were 18.3%, Tesla said, a sharp narrowing from the 26.8% figure from last year’s first quarter and the 22.2% tally recorded over the final three months of 2022 following a series of price cuts in its biggest global markets.
“We’re taking a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin,” Musk told investors on a conference call on April 19. “However we expect our vehicles over time will be able to generate significant profit through autonomy.”
“So we do believe we’re laying the groundwork here and then it’s better to ship a large number of cars at a lower margin and subsequently harvest that margin in the future as we perfect autonomy,” he added. “This is an extremely important point.”
Tesla posted a record first-quarter delivery total of 422,875 new vehicles, a 36% increase from the year-earlier period, but that tally missed Street forecasts as production outpaced demand. Production rose 45% to 440,808 vehicles as supply-chain disruptions and covid-related closures at its Shanghai factory faded.
The pace is firmly shy of the rate needed to meet Tesla’s own target of 1.8 million deliveries over the whole of 2023, and Musk’s suggestion that “if it’s a smooth year … without some big supply chain interruption or massive problem” deliveries could reach 2 million.