3 Reasons That Tesla (TSLA) Will Be the Most Valuable Automaker Again
Last week, Tesla Inc. TSLA briefly became America’s most valuable car company by market cap. While General Motors (GM) regained its throne shortly after, the Silicon Valley-based automaker is not looking to back down from the fight.
Here’s why Tesla is going to be the country’s most valuable car company again:
Price Incentives
Electrek reported that Tesla has discontinued the cheapest version of its Model S sedan and lowered the price of the following variant the 75 kWh Model S, by $7,500 to $69,500.
The price slashes “makes sense,” according to The Motley Fool. As Tesla’s Model 3, the cost-efficient electric car, is set to launch in July, it could compete in sales with the Model S. By lowering the price, the owners who prefer an upgrade or a more spacious car might have a greater incentive to purchase a Model S.
China
The price drop is not only good for electric car buyers here in America but also to customers in Asia. As many countries in Asia continue to shift their focus to greener policies, citizens and corporations are looking at the electric car for alternative transportation to avoid air pollution.
Not only is China the world’s largest auto market, with 23.6 million cars sold in 2016, it is also the largest market for electric cars. According to Ev-Volumes, China saw 85% growth in electric car sales from 2015 to 2016.
China has demonstrated its commitment to reducing CO2 emissions and building a market for electric vehicles. The country looks to create a $1.3 billion market, as it announced in February that Beijing’s taxi fleet of 70,000 vehicles will be switched over to an all-electric fleet, according to a report by National Business Daily.
Before shaking up the taxi fleet, Chinese citizens have been buying electric cars. Tesla reported that its sales in China tripled in 2016 compared to 2015, bringing in over $1 billion in revenues.
Self-Driving Cars
Alphabet’s GOOGL Google or Uber aren’t the only tech companies building an autonomous car.
China’s tech giant, Tencent TCEHY is also one of the leaders in developing self-driving car technology. Reuters reported back in July 2016 that Tencent backed a Chinese automotive venture, Future Mobility, which aims to launch an electric self-driving car before 2020.
Furthermore, Elon Musk, Tesla’s CEO, pledged to make a car that can drive from Los Angeles to New York City with no human control by the end of 2017. Tesla released a video of its Model X SUV driving itself around Palo Alto last year.
Though it is plausible that Musk will not meet his own deadline, Tencent seems to have faith. The Chinese Internet leader recently purchased $1.8 billion worth of Tesla shares.
These investments by Tencent not only show the company’s belief in the market for the self-driving car, but it also hints at Tesla’s possible foothold in the Chinese auto market. With market cap of over $280 billion, Tencent offers more than just financial backing, but also strong political connections.
Bottom Line
Tesla’s recent decision to lower prices might just be a short-term strategy to keep investors confident while it works to explore China’s market and develop a self-driving car. Either way, these choices are smart. It’s clear that Tesla still has several key markets to break into, and that means it will surely regain the top spot eventually.
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