Exclusive information obtained by LatePost reveals that Tesla is planning to resume the construction of its third phase automobile factory in Shanghai. In April this year, Tesla announced plans to build a new energy storage battery factory with an annual production capacity of 40 GWh in Shanghai, which is expected to start production in the second quarter of next year. At that time, there was no mention of expanding the automobile factory.
Insiders close to the matter said that Tesla began preparing for the construction of Phase 3 vehicle factory and forming a team in 2021, but suspended action in the middle of last year. At that time, most of the personnel recruited by Tesla for the Phase 3 factory had been reassigned to other departments.
According to the report from LatePost, it is understood that Tesla will begin selling energy storage battery products produced in Shanghai in China next year. Currently, the Shanghai factory’s energy storage project has recruited a research and development director and is currently hiring a sales manager. Since 2016, Tesla has launched Megapack and Powerwall products in the United States, targeting large-scale commercial energy storage and home energy storage markets respectively. In 2021, Powerwall accounted for over 60% of the US home energy storage market share. Tesla’s energy storage business had not previously entered China. According to official information from Tesla, the Shanghai Energy Storage Factory will mainly produce Megapack products.
If the Phase 3 automobile factory in Shanghai can be established, it will further enhance Tesla’s total production capacity. In January of this year, Bloomberg reported that Tesla originally planned to double the total production capacity of its Shanghai factory to 2 million vehicles per year through the Phase 3 factory. The Shanghai factory currently produces approximately 1.1 million Model 3 and Model Y vehicles annually.
But Tesla’s current bigger challenge is not insufficient production capacity, but rather weak demand: its sales growth continues to slow down and its market dominance is also declining.
In the third quarter of this year, Tesla’s global market sales declined by 6.7% compared to the previous quarter. Tesla’s market share in the new energy vehicle sector in the United States has dropped from 62% in the first quarter of this year to less than 50% in the third quarter. In a more competitive Chinese market, with competitors such as BYD, AITO, and XPeng continuously launching high-specification and low-priced models, both Model 3 (which has been on sale for 6 years) and Model Y (which has been on sale for 4 years) are no longer as competitive as they were when they were first launched.
The next round of significant growth for Tesla will depend on the pricing of their next-generation vehicle, which is expected to be priced at $25,000 according to the 2020 forecast. It is a crucial product for Tesla’s ambitious goal of achieving annual sales of 20 million vehicles by 2030.
Industry insiders speculate that if successfully implemented, the future production focus of Tesla’s Shanghai Phase 3 factory may be on this model. Shanghai is Tesla’s most efficient global production center. While it takes 76 seconds to produce a car at Tesla’s factory in Texas, USA, the Shanghai factory only requires 37 seconds.
On December 5th, Musk stated in an interview that the mass production of this new model has made significant progress. According to information from the supply chain, delivery of this car is not expected until mid-2025 at the earliest.
The energy storage products planned to be sold in China may help Tesla expand its revenue and profit sources.
Tesla’s energy storage business is currently mainly targeting the US market. In the third quarter of this year, energy storage has generated $1.56 billion in revenue for Tesla, accounting for 7% of total revenue. The gross profit margin reached 24.4%, higher than the automotive business’ gross profit margin of 15.9%.
Tesla primarily acts as an integrator in the energy storage business: it purchases energy storage batteries from companies such as CATL, and then completes the packaging and integration itself; it produces components such as photovoltaic panels and inverters in its New York factory (acquired after Tesla’s acquisition of SolarCity in 2016); and installs these product-based energy systems for residential users’ private residences or commercial customers’ office buildings.
Multiple industry insiders speculate that Tesla’s energy storage factory in Shanghai will initially purchase energy storage batteries from CATL, and may later switch to producing its own batteries. The energy storage products produced by the Shanghai factory will be supplied to both the Chinese and global markets.
Bloomberg predicts that by 2030, the global demand for energy storage batteries will reach 1000 GWh, with a market size of $1.2 trillion. However, due to the high cost of batteries, the potential of the battery energy storage market has not been fully realized.
Industry calculations show that the cost of energy storage systems needs to be below 0.4 yuan per watt-hour in order to replace cheaper alternatives such as hydroelectric energy storage. However, the current cost of energy storage systems is still higher than 1 yuan per watt-hour. In the first half of this year, global shipments of energy storage batteries reached 91 GWh, with an estimated annual shipment volume of 200 GWh. However, the growth rate in the energy storage market has significantly slowed down: from 2018 to last year, the growth rate in shipments of energy storage batteries exceeded 80%, but in the third quarter of this year, there was only an increase of 11% compared to the previous quarter, a decrease by 26 percentage points.
Last year, Tesla sold 6.5 GWh of energy storage products, accounting for a quarter of the US energy storage integration service market. The upcoming Shanghai 40 GWh energy storage factory, which will start production next year, represents a significant expansion in Tesla’s energy storage business capacity. Once at full production, the new factory’s supply can meet nearly 20% of global demand for energy storage in the short term. This may indicate that Tesla, known for its proactive investments, sees great potential in the future of the energy storage market. China produces approximately 85% of global energy storage batteries and has a complete supply chain. Building factories in China is an excellent choice for Tesla to efficiently expand its energy storage capacity.
Currently, Tesla’s plan to enter the Chinese energy storage market will face fierce competition. Industrial and commercial energy storage batteries have low performance requirements but high cost demands. In the brutal price war this year, the average selling price of industrial and commercial energy storage products has dropped by 35% compared to the beginning of the year. It may be difficult for Tesla’s energy storage products to maintain a high gross profit margin of nearly 25% in the Chinese market.