Auto Industry

Charged dispute

XPENG accuses Tesla of bullying behaviour


A proud Tesla owner in China

Can rappers drive sales? In an unlikely collaboration, British family shoe brand Clarks has partnered with the Wu-Tang Clan, a hip-hop collective from Staten Island, for years. But in China last month it was Tesla that was getting the lyrical love, courtesy of Chinese rapper RoseDoggy, who had just bought his first Tesla car. “My bro and I are in the All Star,” he rapped. “Don’t stop, keep hitting. The autopilot makes it feel like a spa.”

China’s wider love affair with Tesla is showing up in the sales figures. It topped the rankings for electric vehicle (EV) sales every month in the first quarter after it began rolling out locally made (and tariff-free) Model 3 cars from its gigafactory in Shanghai. In January, it sold 2,620 cars. In February, it sold 3,900 more. Then in March the figure jumped to 10,160, double that of its nearest competitor, the BYD Qin Pro EV. That month, one in every four EVs sold in the country was a Tesla.

Can it keep it up? Tesla says yes, with plans to ramp up its production of 3,000 vehicles per week to 4,000 within the next couple of months. It has also launched phase two of its gigafactory construction in Shanghai, aiming to start making the Model S by the end of the year as well (the two cars share 75% of the same parts).

But April’s sales figures were more of a disappointment, with unit sales dropping two-thirds to 3,635. That’s probably because prospective buyers were waiting until the company started selling the Model 3 at a post-subsidy price of Rmb271,500 ($38,250) from May 1 (Tesla dropped the price by 10% following government moves to lower the threshold for purchase subsidies to Rmb300,000).

Nevertheless, some financial analysts still worry about Tesla’s long-term future in a country that may find itself on the wrong side of a much nastier geopolitical fight with its home nation, America. Tesla also has local EV start-ups to contend with. None are immediate challengers yet, with NIO ranking ninth, WM Motors 12th and XPENG just outside the top 20 for March sales.

However, XPENG’s second model, the P7, will try to compete with Tesla head on. The Guangzhou-based company says that this is because its newest offering will have a longer range than the Model 3 (706km vs 650 km) but – at the moment – be priced more competitively.

The P7 also incorporates L3 autonomous-ready driving capabilities. And it is this technology which has been the source of an increasingly acrimonious court battle in the US with Tesla.

Last March, the American firm launched litigation against one of its former engineers, Cao Guangzhi. It accused him of downloading its proprietary Autopilot source code before leaving to join XPENG two months later.

Cao subsequently admitted downloading the code but said that he did so for the purposes of working on it outside the office, and that he deleted it before he joined XPENG. Tesla was unconvinced, asking a judge in California in January to widen the investigation to XPENG itself, on the basis of alleged infringement of its intellectual property.

It also asked the judge to force XPENG to disclose its full collection of autonomous driving source code and images of computer hard drives from various employees.

Two months later XPENG filed a motion of its own to quash the investigation, which Tesla rebutted in late April. This prompted XPENG to release a heated statement claiming that its American rival “had crossed the line, seeking to rummage through our IP on Tesla’s terms”. The complaint added that Tesla’s “overreach and distortions confirm that it’s just a fishing expedition meant to bully and disrupt a young competitor”. XPENG said that it had already handed over 12,000 documents to Tesla and appointed an independent party to conduct an investigation, which found no evidence of IP theft.

Unusually, commentators on Chinese social media don’t seem to be siding instinctively with the local firm. “XPENG has jumped from the G3 to the P7 and taken a spot alongside Tesla, just like a monkey evolving directly into a human,” was one of the comments alongside an article on the case on Sina Finance

The next chapter is likely to unfold soon, with the US court due to hear the case later this month.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.