Tesla makes big progress in China and its stock is soaring

By Barbara Kollmeyer

EV maker clears data hurdle, reportedly inks Baidu partnership

Elon Musk's surprise trip to China yielded results that included a reported deal with one of the country's biggest tech names, and investors were applauding wildly on Monday.

The EV maker passed a regulatory bar for its new driver assistance technology, while separately, media outlets reported a partnership with China's internet giant, Baidu.

Tesla (TSLA) will team up with Baidu (BIDU) for mapping and navigation on Full-Self Driving assistance for drivers, Bloomberg and Reuters reported on Monday, citing sources. Neither Baidu nor Tesla responded to a request for comment

Shares of Tesla were up over 6% ahead of Monday's open.

Musk's China wins followed a surprise, quick visit to the country that began Sunday and reportedly ended Monday, and which included a meeting with Premier Li Qiang:

The visit was aimed at getting Tesla's Full-Self Driving (FSD) software rolled out to Chinese drivers and permission for transferring data overseas, according to Wedbush analyst Dan Ives. Tesla needs all FSD features unlocked to fully open its new driver assistance technology opened for Chinese owners.

On Sunday, the China Association of Automobile Manufacturers (CAAM) released a list of 76 models of intelligent connected cars that now meet standards for the country's data security requirements for automobiles, with Tesla and rival BYD (CN:002594) autos both appearing on those lists.

The approval came after security tests conducted by CAAM and National Computer Network Emergency Response Technical Team/Coordination Center of China.

"Musk winning FSD approval in the key China market is a watershed moment for the Tesla story in our view," said Ives in a note to clients on Monday. "While the long term valuation story at Tesla hinges on FSD and autonomous, a key missing piece in that puzzle is Tesla making FSD available in China which is now a done deal."

Ives said Tesla has stored Chinese fleet data in in Shanghai since 2021, as required by Beijing regulators.

"If Musk is able to obtain approval from Beijing to transfer data collected in China abroad this would be pivotal around the acceleration of training its algorithms for its autonomous technology globally. We also believe this trip will be significant for Tesla and Musk further strengthening its EV footprint within the Chinese market at a pivotal time," said Ives.

Tesla reported a disappointing first quarter last week, with a sharp decline in profit, but shares jumped after investors focused on Musk's promises to deliver a "more affordable vehicle."

Overall weaker sentiment regarding EVs and Tesla's own particular struggles, which have forced the company to cut its head count, have weighed on shares this year. Down 32% year-to-date, its shares rallied 14% last week.

In a note to clients that published Sunday, Evercore analysts led by Chris McNally, lowered their Tesla price target to $145 from $155 per share, keeping an in-line rating. They said the EV maker's struggles to meet its selling goals could mean more price cuts, and a cheaper low-cost auto, which still may be too pricey to compete in China.

Tesla rival BYD (CN:002594) (BYDDY) offers a subcompact EV that starts at less than $10,000.

"Tesla is a clear story of three regions," said McNally and his team. That is dominant in the U.S. with just under 50% share of neighborhood electric vehicles (NEV), 11% to 12% share in Europe and just 5% to 6% in China. "China remains the driving force behind global NEV volumes at 60-65% of total," they said.

Opinion: Elon Musk gives Wall Street what it wants, but more pain could be around the corner

-Barbara Kollmeyer

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04-29-24 0732ET

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