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Tesla Gains on Mandate of 30% EV Purchases by China Gov

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Shares of Tesla Motors, Inc. (TSLA) gained 4.9% to reach $228.79 on Jul 14, 2014 after the Chinese government made it mandatory for 30% of the government vehicle purchases to be electric vehicles (EV). This should bolster the electric carmaker’s sales in the nation, which is the world’s largest automobile market. However, Tesla will have to compete with domestic Chinese electric car manufacturers like Kandi Technolgies Group, Inc. (KNDI) for sales.

Tesla’s sales in China will also get a boost from the recently announced waiver of 10% purchase tax on domestic and imported electric, plug-in hybrid and fuel-cell vehicles in the nation from Sep 2014 to Dec 2017. The country is trying to increase the popularity of electric cars to reduce the pollution level in its cities as well as increase its energy independence. China already offers significant subsidies on purchase of electric cars and has limited the number of gasoline vehicles that can be sold in some cities, in order to check pollution.

These moves will immensely benefit Tesla as it is aiming to achieve high sales volume in China, where it started delivering vehicles in Apr 2014. The company is also planning to open stores and service centers as well as establish a Supercharger network in the nation. The electric carmaker plans to have total 10 to 12 stores in China by the end of 2014, one of which is its flagship store in Beijing that was opened in Nov 2013.

Tesla expects China to account for 30–35% of its global sales growth in 2014. It expects sales in Europe and Asia to be double the sales in North America by the end of 2014. Additionally, Tesla plans to start manufacturing cars in China by 2017–2018.

The upside in Tesla’s shares was also led by the news that a new law in Pennsylvania will allow it to open up to 5 dealerships in the state. The automaker has been facing opposition to its direct selling model in many U.S. states. Recently, the White House refused Tesla’s request to prevent states from banning direct vehicle sales.

Tesla currently carries a Zacks Rank #3 (Hold). Some automobile stocks worth considering include Meritor, Inc. (MTOR) and Gentex Corp. (GNTX). Both these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on GNTX
Read the Full Research Report on MTOR
Read the Full Research Report on TSLA
Read the Full Research Report on KNDI

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