Guilty as charged?

Musk: faced regulatory warning

What a difference two years can make. At the beginning of 2019, Chinese Premier Li Keqiang offered Elon Musk a green card after the Tesla founder said how much he loved coming to China.

This year his company has been issued with a yellow card instead (to use football terminology). Earlier this month, the State Administration for Market Regulation publicly announced that Tesla had been called in to discuss an accelerating number of customer complaints. An impressive list of regulators – including the Ministry of Industry and Information Technology and the Fire Services Bureau – also took part in the dressing-down meeting (known in China as a yuetan).

Tesla emerged from the session suitably chastened, on Sina Weibo at least, saying that it “sincerely accepts the government’s guidance” and will “conduct a deep reflection of the company’s shortcomings”.

However, the domestic media was unimpressed, noting that Tesla had switched off the comments section on its weibo account. A number of state-owned publications also quickly honed in on recent customer relations missteps. These included the US firm apologising to State Grid after wrongly blaming a power surge for one owner’s problems charging a Tesla car in Nanchang. Then there was the Model 3 that suddenly exploded in an underground garage in Shanghai.

Until recently, Tesla had performed a skilful job navigating treacherous geopolitical waters in China.

After commencing production at its new Chinese factory, Tesla’s Model 3 became the country’s best-selling electric vehicle (EV) in 2020. This year, Tesla wanted to pull off a similar feat with the Model Y, an SUV which started rolling off the Shanghai production line in January.

Tesla has boosted the Model Y’s prospects further by slashing 30% off the sales price. This makes it more affordable than a rival high-end SUV from local EV start-up NIO and traditional combustion engine models produced by German giants Daimler and Audi.

However, the domestic media believes that Tesla needs to take more heed of quality control and stop treating its customers in such a high-handed manner. Xinhua calls it “arrogant” and says the American carmaker needs to “understand an important truth that its industry position depends on high quality products and services”.

In taking it to task, China News Network unpicked 11 reported incidents involving Tesla cars. It said the company didn’t respond to four customers, told two of them there was nothing wrong with their vehicles and blamed the remaining incidents on the drivers in question.

It was perhaps inevitable that Tesla’s success in China would breed hubris, swiftly followed by pushback. However, a quick survey of social media suggests that the company’s Chinese fans still massively outweigh its detractors.

Musk himself has been typically frank about Tesla’s growing pains. He told one interviewer that he always advises his friends to buy their first Tesla either right at the beginning of the production cycle, or when output reaches steady state. “Production hell” is his description of the in-between stage.

This has been pretty evident in recent months. Late last year, the US regulator forced Tesla to recall 135,000 cars produced at its Freemont factory during its ramp-up phase between 2013 and 2017.

Drivers risked being blinded by touch-screen failures. The recall has now reached China too (20,428 imported Model S and 15,698 imported Model X cars were produced by the same Freemont factory).

The stakes are high. China is Tesla’s second largest market after the US, accounting for 21% of 2020 revenues (135,404 vehicle sales). But the gap was closing all year and China is on course to become its largest market in 2021.

A new sales driver may come into play towards the end of the year. Tesla is establishing a Chinese R&D centre and the domestic media believes it’s designing a hatchback version of the Model 3. This reputed ‘Model 2’ may be unveiled at the Guangzhou Auto Show in the autumn. It could sell for less than Rmb161,000 ($25,000), enabling Tesla to further expand its sales beyond its stronghold in tier-one cities.

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