With the help of CATL, will domestically produced Tesla achieve a significant price reduction?

Since Tesla was localized, the price has been dropping, which has made many old car owners dissatisfied. However, it now seems that the previous price reduction is not the bottom, and the price of domestically produced Teslas equipped with CATL batteries is expected to drop by another 20%.

As one of the most core components of pure electric vehicles, domestic Tesla currently uses imported Panasonic batteries. With the full localization of Tesla, CATL has undoubtedly become Tesla's best choice.

In the agreement between CATL and Tesla, there is no clear agreement on the sales quantity and amount of the target. It only stipulates that from July 1, 2020 to June 30, 2022, Tesla will purchase lithium-ion power batteries from CATL, and Tesla will determine the specific purchase situation in the form of orders based on its own needs. This can't help but make people guess how much money CATL can make from Tesla. In fact, in terms of sales prospects, Tesla has always been ambitious about the Chinese market. Previously, Tesla's "small goal" for 2020 was to exceed 500,000 vehicles in annual delivery. In this regard, Yin Chengliang, deputy director of the Automotive Engineering Research Institute of Shanghai Jiaotong University, told the Beijing News reporter that CATL and Tesla are the global leaders in the middle and downstream of new energy vehicles, respectively. Both parties continue to invest high amounts of research and development to support the continuous advancement of technology. Cooperation represents the integration of peak technology and is a win-win move. From a cost perspective alone, as China's top power battery supplier, CATL's batteries have certain price advantages in China.

In January this year, Tesla lowered the price of the domestically produced Model 3 from 355,800 yuan to 323,800 yuan. With the addition of 247,500 yuan in national new energy subsidies, the actual price of the model was about 299,000 yuan, the first time the price has dropped below 300,000 yuan. In addition, as a pure electric model, the Model 3 can also enjoy license plate discounts in first-tier cities, such as the transaction price of Shanghai license plates exceeding 90,000 yuan and Shenzhen exceeding 60,000 yuan. Cui Dongshu, secretary-general of the National Passenger Car Association, analyzed that "with the increase in Tesla's localization rate and the increase in production capacity, there is still a lot of room for Tesla's domestically produced models to fall in the future." He expects that in the second half of this year, the price of the domestically produced Model 3 will drop to 250,000 yuan, a drop of nearly 20%.

Song Gang, manufacturing director of Tesla's Shanghai factory, once revealed that the localization rate of parts in Tesla's Shanghai Super Factory is currently about 30%, and it is planned to increase to 70%-80% by July 2020. By the end of the year, all parts of the domestically produced Model 3 will be localized. In fact, localization will not only allow domestic models to encounter price reduction windows again, but also help Tesla reduce costs. Relevant financial report data show that in the fourth quarter of 2019, Tesla's comprehensive gross profit margin was 18.8%, a decrease of 0.1% month-on-month; the gross profit margin of vehicle sales was 21.6%, a decrease of 0.2% month-on-month. At the same time, the revenue cost of Tesla's automobile sales business reached US$4.815 billion, a month-on-month increase of 19.95%. After the Model 3 is fully localized, raw material expenses can be saved by 10%-20%, manufacturing costs can be reduced by 50%, and labor costs can be reduced by 75%. Based on this calculation, the total production cost can be reduced by 20%-28%. This means that the gross profit margin of the domestically produced Model 3 will reach 35%.