In the afternoon of August 1, Tesla released its financial report for the second quarter. Both its operating revenues and net profits exceeded the forecasts of analysts. The operation revenue for this second quarter was $ 4 billion, with a growth rate of 43.37%, making a new record for a quarter's operating revenue. It was $858 million more than the value ($3.142 billion) predicted by the Wall Street. Tesla's net profit in the second quarter was $-743 million, and its loss was increased by 85.29% compared with that of the second quarter in the last year. However, the net loss was still lower than that of the first quarter, which was $785 million.
In the second quarter, Tesla finished its large-scale cost-reconstruction efforts, which has made some progress Its operational cash out and administration & sales expenses were reduced significantly. The cash-burn amount was lower than the investors' expectation. Its operating expense was $ 1.24 billion in the second quarter, higher than that of the same period in the last year, which was $ 908 million, and even higher than that of the first quarter, which was $1.054 billion. However, due to the large growth of operating revenue, the cash outflow from Tesla's operating activities in the second quarter was decreased, the net outflow was $130 million, much better than that of the first quarter, $398 million.
Although Tesla's business gets better with the special measures, it's still challenging to see whether its lack of production capacity, its operating loss and payment of debts will be solved or not.
It merits attention that Tesla's development starts to be related to China. On this July 10, Tesla and Shanghai Lingang Area Development Administration and Lingang Group signed the agreement about investment for fully electric cars project. Tesla will solely invest a GIGAFACTORY 3 with functions of research & development, manufacturing and sales. This project is expected to produce 500,000 finished full electric cars per year, which makes the largest foreign-funded manufacturing project in the history of Shanghai. Besides, Tesla (Shanghai) Co., Ltd. and Tesla (Shanghai) Electric Cars Research & Development Innovation Centre were inaugurated at the same time. As said by Shanghai authority, Shanghai will proactively support Tesla to establish subsidiary company and electric cars research & development innovation centre with the abilities in research, manufacturing and selling electric cars, driving the commercialization of technological research findings.
When Tesla is trapped with "Manufacturing Inferno" and starts to be abandoned by the capital market, China allows the sole investment of new-energy automobile factory. Then, Tesla decided to establish a factory in China, which is inevitably an important strategic decision. China's powerful manufacturing capacity and its brilliant prospect of a huge new-energy automobile market are the essential factors to solve the current plights. Currently, attracting Tesla to invest and establish a factory in China has special significances. The Sino-American trade conflicts are getting worse. China's development for new-energy automobiles is at the low level. The investment of Tesla, representing the best power of manufacturing electric cars for commercial use, is what China needs from the perspectives of politics, industry and market confidence.
However, every coin has two sides. Although Tesla's investment in China surely will generate some benefits, its successful implementation and continuous development will face some challenges and difficulties. It is also a double-edged sword for Shanghai.
From the perspective of the market, since American market can hardly provide funds, as clearly expressed by Elon Musk, approximately $ 2 billion needed for the establishment of Tesla's new factory in Shanghai, which will be possibly provided by the loans from China's local banks. The initial capital is expected to come in 2019. Which means, if Shanghai wants to attract Tesla, it will offer some preferential policies in terms of lands and tax revenues, and help Tesla to solve some funding problems. As shown by Tesla's operation and development in America, it's still challenging to achieve the financial balance. The funds given by Wall Street and the venture capital in the past are equity financing, which can be burnt. However, the loans of Tesla from banks are bond financing, and should be repaid to those banks. Otherwise, bad debts will be produced. Therefore, from the economic perspective, introducing Tesla in China is still challenging.
From the perspective of developing high technology industry, Shanghai is attempting to attract the investment of Tesla and still facing some challenges. Chan Kung, chief researcher of ANBOUND pointed out that, it's better to foster China's high technology industry than import it from abroad. The development of technology industry needs time, and this industry should rise based on its accumulated strength, which is the reliable strategy. If the technology industry relies on nothing but imported technologies and liquid capital, it will disappear as quickly as it is generated. In Shanghai where every inch of land is expensive, industries with long-term developmental prospects should be developed and fostered, such as the biological medicine, which is the key point.
Chen Gong said that Shanghai was in a rush to attract Tesla's investment. Besides the ridiculous preferential policies for Tesla, it also strays from China's thoughts of developing new-energy automobiles in the future. It merits attention that after China's Prime Minister Li Keqiang visited Japan in this May, the development of fully electric automobiles have changed its direction. Despite those changes, Shanghai still spends a lot on developing full electric automobiles. The success of industrial development depends on the cost control, which surely will generate lots of benefits. Besides, in the Changjiang River the waves behind drive on those before, says a Chinese proverb. The late-comers will develop better than the pioneers. Now, Tesla's investment is attracted to Shanghai in high profile, and Shanghai authority treats it as a star industry. However, how will the Shanghai authority deal with it later? Since General Motors and Volkswagen plan to leave Shanghai, the current importation of Tesla is unreasonable.
Final Analysis Conclusion:
With the worsening Sino-American trade conflicts, Tesla's investment in Shanghai has positive symbolic meanings. However, the introduction of Tesla with high costs might generate some challenges for Shanghai in terms of space resources, high importation costs, adjustment of national industrial policies, the market's continuous development and others. Thus, it might be a double-edged sword.
