Kasia Broussalian, Will Schmitt and Edward White September 9 2024 Kasia Broussalian So to start off, just walk me through the problem here for Tesla. How much have sales fallen and how big of an issue is it for the company? Edward White So the key issue here is that sales growth for Tesla has been slowing for some time. So if we look at some of the numbers in July, Tesla reported first half sales in China of 9.2bn. And that was down from about 10.6bn from the year before. Now, to be fair, other foreign carmakers have had a much steeper decline. But it is a big worry because China has been a real growth market for Tesla. It contributes, you know, roughly around half of the company’s global deliveries. And it is also remember, by far the biggest market for electric vehicles anywhere in the world. So no car company wants to see their growth slow down there. Kasia Broussalian So what are consumers in China buying instead then? Are they just pivoting to domestic EVs? Edward White So there has been two real key themes over the past year. One has just been this massive growth in the Chinese-branded EVs. So lots of companies have entered the space. They’re able to tap into China’s very deep and extensive supply chain. They’re also able to move much faster than foreign companies it appears in terms of really being in touch with Chinese consumer preferences. Now, what we’re also seeing at the moment is a really, really interesting pivot towards hybrid vehicles in China. So these are cars with a smaller EV battery than your pure battery EV like a Tesla, and also a fuel or gas powered engine that goes along with it. And we’ve seen actually about a 90 per cent jump in sales of plug-in hybrids over the past year or so. Kasia Broussalian Wow. And is Tesla thinking about pivoting towards making a hybrid model then to better compete with these domestic carmakers? Edward White I don’t think we’ll see Tesla go towards a hybrid model. That’s just not the sort of technology that I think Elon Musk has any real interest in. What we think Musk is looking at instead is trying to bring more of his autonomous driving technology. So that’s the pivot that he wants to make. And one of the key things here that Tesla needs to make this happen is regulatory approval. It seems Tesla is making progress on, but it’s slow. And like I said, without this kind of new product or new offering, in the meantime, Tesla is really struggling to find new growth drivers here. Kasia Broussalian So looking ahead, what could these challenges in China mean for Tesla more broadly as a company? Edward White So losing earnings growth and revenue growth in China is obviously problematic from a bottom line point of view. Elon needs to find a way to turn that around, whether it’s by new models being introduced that excite Chinese customers, or a new software platform that comes in and basically gives them a new revenue stream. Beyond that, there is going to be a challenge that as Tesla goes into other markets, they’re going to be followed by Chinese companies that are also looking to set up manufacturing all over the world now. So this is not just a China problem for Elon Musk. So the problem that they’ve created for themself has been that because they’ve been so successful in China, a lot of Chinese companies have joined in. So Tesla’s success in China has ultimately been really a key part in growing the Chinese industry but that Chinese industry is now threatening to take over Tesla. Kasia Broussalian