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Here’s Why Tesla CEO Elon Musk Was Dancing In China

Kenneth Rapoza

Last week, a viral video of Tesla rocket man Elon Musk dancing in Shanghai had people largely making fun of his dance moves. Social media loves to pick on this man.

There he was, suited up on a stage somewhere in Shanghai to reveal the new Model Y electric sports utility vehicle program. The Chinese city will be home to Tesla’s first assembly line outside of the U.S. Musk sunk a reported $2 billion into China. The first ten customers of that new factory got their Made in China Tesla 3 last Tuesday.

For Tesla fans, it was a good day.

But there is much more to this happy dance than selling ten Teslas to a few Chinese individuals believed to be employed by Tesla.

Tesla’s share price is up over 5% on Monday.

MarketWatch said an Oppenheimer equity analyst was the reason for the stock crossing $500 for the first time.

Oppenheimer analyst Colin Rusch raised his stock price target by nearly 60% to over $600, saying he believes the electric vehicle maker has reached “critical scale” sufficient to support sustainable positive free cash flow.

Sounds boring.

Here’s another reason why Musk is dancing, and many in the market in China know it today—state subsidies will stick.

Over the weekend, the Ministry of Industry and Information Technology announced that subsidies for elective vehicle manufacturers would remain in place, reversing the market consensus that they would be cut. 

Those subsidies helped Tesla sales in the recent past. They will help Tesla sales in China again, where Tesla is seen as a sexy Hollywood car brand from California, competing with the non-luxury domestic BYD Auto EVs made in X’ian, central China. BYD’s midsized sedan, the E5, sells for 109,000 yuan, or around $16,000.

On January 3, news first broke that Tesla’s Model 3 sedans would be available to Chinese customers at the subsidized rate of 299,050 yuan, or $43,375, a 16% discount. It is unclear which range model this is. For the Model 3 standard range sedan in the U.S., prices start at $39,900 with the longer range version priced at $48,990.

The U.S. also subsidizes electric vehicles, but China is considered a much bigger market simply because it is the world’s largest car market and the government is trying to lower China’s carbon emissions. EV subsidies are likely here to stay. Good news for Tesla.

China accounted for roughly 45% of all electric vehicles produced worldwide. That figure is likely to rise considering it was at that level at the start of 2017, according to a report by McKinsey & Company published in July of that year.

Subsidies have been as high as 23% of the total EV car price. For comparable vehicles, that’s lower than the subsidies available in Scandinavian countries such as Denmark (where it was as high as 49%) and Norway (45%), but higher than the subsidies provided by the United States (~18%), Germany (~13%) and Japan (~10%).

China said it would gradually begin to shift from direct subsidies to nonmonetary incentives for EVs, but this weekend proved otherwise and gave Musk a reason to dance, whether he knew about the subsidies remaining or not.

Even though China beats the world in the number of EVs sold, the penetration rate for electric cars is much lower, owing to its massive market size. That’s a huge opportunity for Tesla in China.

Elon Musk’s name recognition has helped push Tesla’s stock price higher than BYD’s stock price. Tesla is up 43% over the last 12 months while BYD Auto’s shares are up just 1.24% in Hong Kong dollars.

China’s importance to Tesla will one day be what China’s importance has been for Apple over the last several years.

The biggest difference is that Tesla’s are being built for the local market, while Apple products are built for export. That could make it less susceptible to China retaliatory risks if the trade war heats up again.

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I've spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big

I've spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big emerging markets exclusively for Forbes. My work has appeared in The Boston Globe, The Nation, Salon and USA Today. Occasional BBC guest. Former holder of the FINRA Series 7 and 66. Doesn't follow the herd.