The third quarter is ending, and a certain trend is emerging among regions supplied by Tesla’s Gigafactory Shanghai. Following the facility’s recent round of upgrades, the vehicle delivery wait times for Model 3 and Model Y variants that come from Tesla’s China factory are getting shorter.
And this, at least according to Piper Sandler analyst Alexander Potter, could be a “scary” prospect for Tesla’s rivals in the automotive sector. Tesla China has regained the momentum it had prior to Shanghai’s strict Covid lockdowns earlier this year. This was quite evident in August 2022’s results, which revealed that Tesla managed to produce almost 77,000 vehicles.
In a client note, Potter noted that Tesla China might very well post higher monthly production totals in the next months. This could be the case this September, as it is Giga Shanghai’s first full month of production in the third quarter that was not affected by a factory upgrade. Optimistic estimates from TSLA bulls online suggest that Giga Shanghai may even be going for 100,000 vehicles in September.
“As production ramps and wait times fall, we think Tesla will remain singularly capable of quickly meeting consumer EV demand at palatable price points. While other brands continue to struggle to ramp production, Tesla will (presumably) start cutting prices, thereby boosting market share at everyone else’s expense,” Potter wrote in a note.
“If Tesla’s upstream supply bottlenecks truly are breaking, we think it’s a scary prospect for other brands,” the Piper Sandler analyst added.
The analyst did state, however, that Tesla investors should not expect gross margins to “sustainably exceed 30%” like they did in 2H21 and early 2022. This was because while Tesla’s vehicle output is increasing, the company’s margin expansion would likely get capped by price reductions.
Even during the times when Tesla was under constant attack by short-sellers, the company has maintained that it does not have a demand problem. Instead, Tesla’s sales so far have been limited by the number of cars it can produce. With the company now gaining the ability to make more cars than before due to the ramp of facilities like Giga Shanghai, Tesla’s share of the auto market is bound to get larger.
Disclaimer: I am long TSLA.
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