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Tesla's quagmire in China

Customers look at a Tesla Motors Model S electric vehicle at the company's showroom in Beijing. Photo: Bloomberg News 

Tesla Motors is aggressively working on its plan to expand its supercharger network across China, the largest car market in the world. But it still remains uncertain whether Elon Musk can deliver on his grandiloquence of making the company the leader of the green car revolution in China, where growth in passenger car sales faltered in 2014.

On January 13, Tesla Motors forged a partnership with Zuoyou Sofa, a Shenzhen-based furniture manufacturer, in a deal, which allows the US electric car maker to build destination charging points in 100 Chinese cities. The agreement is the latest push of Tesla Motors to further accelerate the ongoing construction of the supercharger in China, which it flaunts as the world's fastest charging station. Under the agreement, Tesla Motors will also rely on the channels of its Chinese partner to launch marketing activities, such as car owners' gathering and test drive, to reach out to potential customers.

Still, the agreement coincided with a depressing statement on the same day, when Elon Musk, Tesla Motors' founder and chief executive, conceded that the company's sales in China were "unexpectedly weak" in the fourth quarter of 2014, thereby sending a message that the Model S sedan, the company's mainstay product in China, failed to make a splash in the nascent market by means of what he calls the "fair price" strategy and the "zero-emission" slogan.

Demoralizing management change

Since the deliveries of the first Model S sedans to Chinese customers in April 2014, Tesla Motors has taken a hit from two big changes in the management in China.

In late 2014, Tesla Motors abruptly announced the resignation of Veronica Wu from the post of China president, without giving a reason for her departure. Wu's resignation came only nine months after her predecessor, Kingston Chang, left the company for "personal reasons". As the first senior executive assigned for the company's operations in China, Chang had achieved a feat in embellishing Tesla's brand image as the vanguard of a green car revolution in the country since early 2013 when the electric car maker entered the market.

The China Business Journal cited people with the knowledge of the matter as saying that Chang's departure was the consequence of an internal strife with Wu for power, in which Chang's close associates also resigned. Tesla Motors declined to comment on it.

The demoralizing personnel change in the company's management in China sparked speculations that Tesla Motors still falls short of a solid foundation needed for its faster-than-expected inroad into the Chinese market, where the government is inclined to protecting domestic electric vehicle industry.

Unexpectedly weak sales in China

Musk said on January 13 at the Detroit Auto Show that Tesla Motors' sales in China were down during the fourth quarter of 2014, but he did not give a specific number.

According to statistics, during the first three quarters of 2014, Tesla Motors sold 3,500 Model S sedans in China, a number much less than the company's annual sales target of 5,000 cars.

Tesla Motors CEO Elon Musk speaks at the Automotive News World Congress in Detroit on January 13, 2015. Photo: AP

The weaker-than-expected sales performance indicates that Tesla Motors is still far from ingratiating the Model S sedan with the Chinese consumers. "Most rich Chinese consumers bought Tesla's (Model S) cars for a reason that they wanted to jump on the bandwagon, rather than the need to save energy and reduce emissions," said Wang Binggang, senior engineer at the China Automotive Technology & Research Center and head of an expert team tasked with monitoring the new energy vehicle development projects under the National 863 Plan.

However, Musk attributed the downward sales in China to the concerns of potential Chinese customers that Tesla Motors is unable to build its supercharger network in China that is sufficient to ensure that its electric cars can run the long distance as promised.

In the first three quarters of 2014, Tesla Motors completed the construction of nearly 40 supercharger stations in 19 big Chinese cities, such as Beijing, Shanghai and Guangzhou, with more than 600 destination charging points built in over 60 cities across the country. But the coverage is not as pervasive as Tesla Motors has in the United States and Europe.

Although Tesla Motors has gained policy support and subsidies for new energy car from some regional governments in China, there are still restrictions on purchase of the imported Model S car. In addition, the electric car maker cannot autonomously build its charging stations in Chinese territory, which has forced it to depend on collaboration with Chinese partners, including China Unicom and Minsheng Bank, to establish the charging points.

Competition from domestic brands

A starting price of 734,000 yuan for an imported Model S electric luxury sedan might be attractive to premium consumers in China, but it is too high for more general consumers, especially at a time when domestic players, such as BYD Auto and Chery Automobile, are also eyeing the nascent market with low-priced hybrid and battery-powered cars.

A survey released by the evdays.com, a Chinese electric car industry information provider, shows that sales of BYD Auto's Qin plug-in hybrid car, which features a stylish exterior and retails at around 200,000 yuan, ranked No. 1 in November with sales of 1,753 units in the Chinese market, an increase of 3 percent from a month earlier. BYD Auto sold a total of 12,928 Qin plug-in hybrid cars from January to November.

A BYD Auto Qin plug-in hybrid car Photo: Wautom.com

The sluggish sales in China and the challenge from cheaper home-grown cars seems to have made Tesla Motors consider the launch of a 300,000-yuan electric car targeted at the country’s middle-scale market, said sources.

Tesla Motors is developing the Model 3 electric car, which will cost $35,000 (about 220,000 yuan), said Musk at the Detroit Auto Show, adding that the new model will be crucial for the company to reach a goal of selling 500,000 cars a year in the next five years. But it is not sure whether the middle-end product will be on sale in the Chinese market.

Musk has pointed out many times that Tesla Motors is planning to work with a Chinese company to establish local manufacturing, which will enable the electric car maker to sell cars at cheaper prices by fending off the country's import tax. But no schedule for local production has been confirmed by Musk so far, even after his April visit to China, which the chief executive hailed as pivotal in establishing a good relationship with the government.

"Tesla will be increasingly marginalized in China if it cannot realize local manufacturing," said an official at the National Development and Reform Commission on the condition of anonymity, adding that a series of problems, like the complicated vetting process, will delay realization of Musk's ambition in the Chinese market.


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