Tesla’s market cap today is roughly $75 billion, but Russell says it leads in battery technology and autonomous driving software giving Tesla what he calls a first mover advantage over other car makers in China. “And that's why I'm a long term shareholder and plan on staying here for a long time, even though we've recently hit two highs,” he said.
Shares of Tesla (TSLA) closed above $400 for the first time on December 19th on news the first delivery of chinese built Tesla Model 3 cars would take place before the end of the year.
“Even bullish investors like myself didn’t think they were going to start delivering cars from this factory in 2019. They built this from scratch in literally a year,” Russell said.
But not everyone is so optimistic. Auto analyst Rebecca Lindland, the founder of Rebeccadrives.com, says Tesla has a long road ahead. “I think it's really important to understand that this is not full-scale production,” she said.
Tesla’s China road map
Tesla continues to manufacture parts, batteries and stamp bodies in the United States. It then ships everything to its brand new $2 billion factory in China to assemble cars like those that rolled off the assembly line in Shanghai.
“These are what are called kits,” Lindland said. “So they basically make all of the different parts and then bring it and put final assembly together in China. So you can say that it's made in China, but it's important to understand what made really means.”
Other car makers do the same thing, Lindland added.
Russell says that’s not important, even though assembling cars in China is currently more expensive for Tesla than sourcing materials in country. Tesla plans to locally source all of its Chinese production by the end of next year.
“Tesla is already doing about $600 to $700 million in revenue per quarter in China. And they’ve been doing that with their hands tied behind their back,” Russell said.
Research firm LMC Automotive says Tesla sold 10,542 cars in China during the third quarter of the year despite tariffs on US built goods which drove up prices. A U.S. built Model 3 costs a Chinese buyer about $62,000. But one assembled in China costs about $51,000 and is exempt from a 10% purchase tax.
“Now they’re going to be able to basically reduce their prices by 20% compared to what they were selling in the world’s largest vehicle market and electric vehicle market,” Russell said. “So I think this is a really exciting step forward.”
Tesla says it is producing 1000 Model 3 cars a week in China and Lindland says the pressure is on Elon Musk to live up to Tesla’s potential.
“Originally they had talked about already producing 2,000 and 3,000 Model 3s made in China at this point,” she said. “They've delivered 15. They're actually not starting to really do more mass assembly until about another six months or so. So there's a lot of investment that has to go in.”
Russell points out that Tesla just scored a $1.6 billion line of credit from the Chinese government and is tailoring the Model 3 for the local market with Tencent video on its touch screens and unique software for Chinese buyers.
“It’s going to be a big success there,” Russell said.
Adam Shapiro is co-anchor of Yahoo Finance On the Move.