Tesla Motors Inc. (TSLA - Free Report) is planning something big for the world’s biggest market – China. This looks the right time for the electric carmaker to enter the Chinese market where the government is trying to reduce the sale of vehicles that emit greenhouses gases and the luxury vehicles become increasing popular among the Chinese buyers. The company CEO Elon Musk described the move as a “wild card” in the company’s future.
Tesla plans to open its first showroom in central Beijing at the exclusive Parkview Green mall later this year. It would be an 8,000-square-foot showroom, roughly three times the size of its U.S. showrooms.
However, TSLA would face challenges strengthening its base in the country, mainly due to the lack of charging infrastructure. Moreover, its flagship car Model S would be subject to import and luxury taxes in the country, which would push up its already steep price.
Many global automakers have shown interest in capturing the potential luxury vehicles market in China, which is dominated by European brands. Last month, General Motors Company (GM - Free Report) broke ground for a $1.3 billion plant in China that will manufacture its popular Cadillac luxury model. GM aims to produce 160,000 vehicles annually from the plant.
In February, General Motors began producing Cadillac XTS sedan at a plant in Shanghai. GM plans to expand Cadillac’s dealer network to 200 by the end of the year from 69 last year despite sluggish sales, as it is optimistic about the long-term growth in the segment. Ford Motor Co. (F - Free Report) also plans to introduce its Lincoln luxury lineup in China in the second half of 2014.
After months of sluggish growth owing to weak economic conditions and restrictions imposed by the government on new vehicles, total vehicle sales in China reflected a steady growth of 11.2% in Jun compared with 9.8% in May, according to the China Association of Automobile Manufacturers (CAAM).
The steady growth in sales was mainly attributable to lower prices, which partially offset the effect of shortage of credit, weak economy and government restrictions on vehicle registration due to increasing traffic congestion and pollution in Chinese cities.
Shares of TSLA more than tripled this year. The stock debuted in the NASDAQ-100 Index and the NASDAQ-100 Equal Weighted Index on Jul 15, replacing technology giant Oracle Corporation (ORCL - Free Report) .
Tesla Motors posted its first-ever quarterly profit of $15.4 million, or 12 cents per share, on an adjusted basis, in the first quarter of 2013. This indicated a whopping positive earnings surprise of 271.4% given the Zacks Consensus Estimate of a loss of 7 cents for the quarter.
Revenues jumped manifold to $561.8 million from $30.2 million in the first quarter of 2012, thanks to the impressive 5,000 units of Model S electric car sales during the quarter. For full year 2013, the company expects to deliver 21,000 Model S cars globally, up 5% from its prior guidance of 20,000 units.
In May, TSLA also paid off the remaining $465 million U.S. Department of Energy (DOE) loan much earlier than expected. The electric carmaker received the loan in Jan 2010 and agreed on a 10-year repayment program. However, the company repaid the full outstanding amount of the loan in the second installment itself.
We expect TSLA to beat estimates when it reports 2013-second quarter results before the opening bell on Aug 7 due to the combination of the stock’s Zacks Rank #1 (Strong Buy) and 27.8% ESP (Read: Zacks Earnings ESP: A Better Method).