Tesla in China
In spite of a sensational Chinese debut, Tesla’s electric sedan is unlikely to replicate its US market success in the People’s Republic
Ablog post drafted by car company Tesla’s CEO and founder Elon Musk went viral in China’s blogsphere in late January.
The post detailed the unavoidable tariffs, delivery costs and value-added tax included in the “fair price” Tesla was going to charge for the company’s electric sedan, the Model S.
Musk’s candour garnered wild applause from Chinese auto fans, who have long felt they’ve been ripped off by foreign companies who take advantage of domestic distrust of indigenous automobiles.
Tesla’s Model S was priced at 734,000 yuan (US$121,370) in Chinese dealerships, an almost exact 50 percent markup on its US price. It is typical for imported cars in the China market, especially vehicles at the luxury end, to be sold at far higher prices than in Europe and North America– the Mercedes-Benz S-class sedan costs 3.1 million yuan ($510,000) in China, 150 percent more than its retail price in the US.
Tesla could afford to sell its electric sedans slightly cheaper due to a direct sales strategy and an exemption from consumption tax thanks to the car being entirely battery powered – the tax on gas-powered automobiles with an engine capacity above four liters can be as high as 40 percent. The perception of this flashy new vehicle as a relative bargain soon translated into healthy pre-sales in China.
A sales manager at Tesla’s sole mainland outlet in Beijing, while declining to give specific numbers, said many Chinese customers had made down payments on the Model S, despite the fact that none were able to take a test drive.
Tesla’s total sales in 2013 were about 22,500, mostly in the US, but the company has high hopes for its China operations. There are plans to open another 10 stores in China by the end of 2014, and Tesla is anticipating that the China market will contribute one-third of its sales growth this year.
Hard to Crack
Even more so than other high-end auto brands, Tesla has no local rivals, and the performance and design of Chinese-branded electric cars are decades behind the specs offered by the Model S.
The 85-kilowatt version of the Tesla Model S, which could pass as a fancy roadster, is able to run a maximum of 500 kilometers, while the most presentable China-made electric vehicle models, which generally look the same as any mediocre hatchback, have a limit of less than 300 kilometers.
“There will be no competition between Tesla and domestic brands, since Chinese battery electric vehicles (BEVs) concentrate at the entry-level end,” said Li Ming, an industry analyst with Shenzhen-based Guoyuan Securities.
Chinese-branded BEVs are mostly priced between 200,000 to 300,000 yuan (US$32,900 – 49,400), though buyers can usually expect to receive more than 100,000 yuan (US$16,500) of subsidies from central and local governments. These subsidies, however, are unlikely to be extended to Tesla buyers, as they were designed to incentivize domestic production of electric cars.
China has pledged to put 500,000 plug-in hybrids and BEVs on the nation’s roads by the end of 2015, and 10 times that number by 2020, according to a State Council industry program released in 2012, which aims to turn China into the world’s largest market for electric vehicles within a decade. However, with one year to go, China is still about 480,000 units away from meeting its first stated target, according to a report from Ping’an Securities.
As Tesla has yet to be listed in China’s new-energy vehicle catalogue, which so far only include domestic brands, Tesla drivers would not be eligible for other preferential policies, such as the purchase tax exemption enjoyed by domestic-branded BEV buyers. In addition, anyone purchasing a Tesla Model S would need to enter the massively unpopular license plate lotteries or auctions in Beijing, Shanghai and Guangzhou – the mainland cities with the densest concentration of people with an income sufficient to consider purchasing such a high-end vehicle – as better odds in these lotteries, or exemptions, are only extended to those willing to purchase a Chinese-made automobile.
In spite of all these policies, consumers have yet to show much interest in domestically-banded BEVs. By the end of 2012, domestic automakers sold a total of 4,400 to Chinese households, and 2013 sales were negligible due to the absence of subsidies.
So far, more than 100 BEVs, manufactured by 54 Chinese automakers, have been given the government green light to go into full-scale production, but only few presentable models have reached volume production. Chinese consumers are particular about their cars – still a major symbol of upward mobility – and few are inclined to flaunt the purchase of a mainland-branded vehicle.
In contrast, US EV sales totaled 960,000 units in 2013, including 226,000 units of the Japanese-branded Nissan Leaf, coming in just after the Chevrolet Volt’s 230,000 units. Neither of these models are marketed in China. Tesla came in third with 18,650 units sold, mainly in coastal states.
“The quality and performance of current domestically-branded products has yet to convince consumers,” said Zhong Shi, an independent analyst based in Beijing.
According to Zhong, the disappointing development of China’s BEV industry has undermined Tesla’s expansion in the China market, because it is highly unlikely that Tesla will be given the green light to establish a network of roadside superchargers, significantly increasing the recharge time of its Model S. Plugging in to a Tesla Supercharger gives a driver half charge within 20 minutes. Plugging into a Chinese 220-volt household power socket only provides 10 to 16 kilometers of mileage per hour of charging.
While the company has declared its intention to establish such a network, starting with the expressway connecting Beijing and Shanghai, “it is highly unlikely that the State Grid, which is seeking to monopolize BEV recharging stations, would concede any market share to Tesla,” said Zhong.
“For a long while yet, Tesla [automobiles] will just be big toys for those who can afford them, since a drive out of town is still not feasible,” he added.
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