Posted on March 28, 2015 by Matt Pressman
We wanted to dig deeper into the "narrative" surrounding Tesla in China. Many naysayers see only dark clouds ahead in the region. But... what if the opposite were true?
To start, let's take a look back before we look forward. Tesla began taking orders for its Model S in China in mid-2013 and deliveries started in April 2014. Fast forward to 2015: Tesla announces swift staffing changes and lower-than-expected sales in China. What happened?
Photo: Car News China
Yesterday, Musk told Shanghai Daily, "China is the only place on Earth that we have excess inventory. We are essentially selling cars that speculators ordered but we are not able to take delivery on," the CEO said. He’s calling this new transitional period in the region (half-jokingly) a "speculation hangover." Nevertheless, Musk said he has seen a steady increase in China’s sales over the past three months and is "quite optimistic about where things are heading."
Musk continued, "We have a strong long-term commitment to China, and we intend to establish both local production and local engineering in China," Musk said. Localization could be possible "in three years" he said. Once the [U.S. Tesla] factory reaches full capacity, it is "just the sensible logical thing" to "localize production in China for the Chinese market," Musk explained. This follows reports that Tesla was visiting local automakers to investigate potential local production capability. And, an added benefit for those in China considering purchase of the Model S -- Tesla Motors is now beginning to get some compelling incentives courtesy of local Chinese government.
Above: Tesla makes a "dramatic entrance" in Shanghai
During last week’s press conference, Musk revealed his plans for the region: “We’ve proportionately added more Superchargers in China than anywhere else in the world… And we’ve taken a number of other steps to provide Model S owners with adapters for using virtually any charging location in China — and those have only just gone out... We’re already seeing some steady improvements in China.”
To provide some context, let’s look at how big an impact China can have worldwide on Tesla Motors. It’s valuable to look (first) at China’s adoption of electric vehicles. This month, the Electric Vehicle Institute’s (EVI) Global EV Outlook reported that globally, electric vehicles have surged, rising from about 180,000 electric cars on the road in late 2012 to 665,000 on the road at the end of 2014. The three EVI countries with the highest percentage of global EV stock include the United States (39%), Japan (16%), and China (12%), see infographic below.
Let's also take a look at the "mindset" as it relates to EVs in China. In a recent US/China study led by Carnegie Mellon University, the data gathered points out that American respondents had significantly lower “willingness to pay” for BEV [Battery Electric Vehicle] technology than their Chinese counterparts. After all, China already has 230 million electric bikes, 83,000 electric cars, and 36,500 electric buses (see infographic above). Could these findings indicate that the Chinese may be more open to Tesla Motors than some may have previously thought?
Only time will tell. But it seems the tide may be turning in the region. One thing is for sure, electric or not, China seems enamored of Tesla’s new supercar, the P85D, that just arrived in the region. Already, this viral video (see below) has over one million views. I can't translate what's being said but if the reaction in China is anything like the woman we see at 2 min 32 sec in... we'll be in for a thrilling ride.
Credit Suisse research analyst, Dan Galves, came out with a note on Tesla Motors (TSLA). As part of it's "Outperform" rating, Galves added some thoughts on China: "China also may be turning a corner: After several significant missteps on the initial launch (April 2014), a new management team, engineering improvements (working Navigation system, rear executive seat option), and a decision to handle home-charging access for the customer appear to be paying early dividends. While we are not expecting much improvement in 2015, we are highly convicted that this will be a big market for Tesla in the medium-term. China is the only market where Model S competes directly on price with midsize luxury sedan and that segment is 70% bigger than U.S."
This follows tweets from Elon Musk that echo this enthusiasm during his trip to China this week...