Auto Industry

America first

Tesla’s sales in China badly trail its home market


Model 3: game-changer in China?

“The President-elect has a strong emphasis on US manufacturing and so do we,” ventured Tesla’s boss Elon Musk as he showed visitors around his new Gigafactory in Nevada this month. “We’re building the biggest factory in the world right here, creating US jobs.”

Musk sits on Donald Trump’s Strategic and Policy Forum, giving him a direct line to the new president. Some analysts believe this could give Tesla an advantage in its home market, and its focus on production in America might provide another edge. Research from a Wall Street securities firm claims that 83% of Tesla employees are American and that the forthcoming Model 3 will have the highest percentage of US-sourced components of any car on the road.

In 2016, Tesla nearly doubled sales in the American market following the introduction of the Model X (an SUV which comes with falcon-wing doors) at the beginning of the year. Provisional figures for 2016 reveal sales of 29,421 of the Model S compared to 25,202 in 2015, plus another 18,223 Model X sales, making Tesla number one and number three in American sales by electric car model type.

In China it is much further behind although the introduction of the Model X in June has helped it to climb up the rankings (in November, Tesla was 13th, compared to 17th for the year as a whole).

Unidentified sources told 21CN Business Herald that Tesla sold 5,130 Model S cars during 2016 and 2,131 Model X. This total puts Tesla closer to the 10,000 annual sales goal that Musk established for the Chinese market in 2014. That said, it has a habit of missing targets, including its 80,000 units of global sales for 2016 (although analysts agree that Tesla would have achieved it had the figure included orders still in transit).

As we wrote in WiC350, Chinese producers control 95% of the domestic electric car market. Tesla is the biggest foreign operator, but only has 3% market share. This could change if the government allows global makers of electric vehicle brands and battery manufacturers to set up local production facilities without joint venture partners. New rules are expected in the coming weeks (some analysts think this is why Tesla held back on a rumoured $9 billion joint-venture with state-backed Jinqiao last summer).

21CN has been pondering why Tesla hasn’t sold more of its cars in China. One finding was that they are too expensive, but the newspaper is cagier on why – the 30% tariffs and duties Tesla faces because it doesn’t manufacture onshore.

Even if the rules don’t change, Tesla’s new $35,000 Model 3 will give it a lower-priced offering to compete against Chinese rivals, whose electric cars sell for as little as $8,000 each (thanks to subsidies).

Ren Yuxiang­ – Tesla’s local boss, and an old schoolmate of Musk – told an EV forum this month that he was excited about the prospects for the newest car: “In the second half of this year we will launch the Model 3 in the US, and strive next year to introduce it to China. The Model 3 is an electric car that can lead us into thousands of households because more consumers can afford it.” The Model 3 has amassed roughly 400,000 of pre-orders globally; a potential game-changer for the industry in general.

One thing that may not help Tesla commercially in China, however, is that it has announced that any customers that buy its cars after January 15 must pay for vehicle charging (those who purchased before that date will still be able to use its super-chargers for free). To sweeten the pill, Tesla said new Chinese clients will get 400 kWh of ‘charge’ for free every year (although that’s only four full batteries). TMT Post estimates it will cost between Rmb22 to Rmb24 per 100 kilometres to run a Tesla compared to Rmb77 for petrol-driven cars.

Not uncoincidentally, the new pricing plan is almost identical to that of State Grid, which has a far larger charging network than Tesla and predominantly targets customers driving domestically made EVs like those sold by BYD.

By comparison, Tesla owners still struggle with a relative scarcity of charging stations. The stations that are available are likely to be busy too – hence another new policy from Musk to maximise their use. Chinese customers will be given just five minutes to drive their fully-charged Teslas away from the super-charger stations and thereafter will face a Rmb2.6 per minute “parking fee”.

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