China charges up: The world’s biggest auto market just opened up for Tesla

A sleeping dragon is stirring. The world’s largest auto market is going electric, and no company is in a better position to profit than Tesla. 


Above: Tesla owners charging up in China (Image: Tech Drive)

China is already a huge market for plug-in vehicles (“new energy vehicles” to the locals). China Daily (via InsideEVs) reports that the country now has over a million plug-ins on the roads - the Ministry of Public Security (MPS) and the China dealers association (CAAM) offer different figures, but both agree that the million-vehicle milestone was surpassed some time earlier this year. Interestingly, the vast majority of these - more than 80% - were pure electric vehicles, rather than plug-in hybrids. According to MPS, the production and sales of new energy vehicles is expected to exceed 5 million by 2020.

Even bigger things may be in store, however. A Chinese official recently announced that the government is working on a timetable to end “production and sales of traditional energy vehicles,” according to accounts from the Xinhua News Agency (via Electrek). No dates were mentioned, but Xin Guobin, the Vice Minister of Industry and Information Technology, said that regulators have begun the “relevant research,” and that the policy will be implemented “in the near future.”


Above: Cumulative sales of New Energy Vehicles just surpassed the milestone of one million vehicles in China (Source: InsideEVs via CAAM)

Several countries, including Norway the Netherlands, France, Britain and India, have already discussed plans to phase out fossil fuel-burners. Even Chancellor Angela Merkel, a reliable supporter of the diesel-loving German automakers, has hinted that a transition could be in the cards.

Even though most of these initiatives are pretty vaguely defined at this point, the fact that they’re being seriously considered represents a sea change. If China really does go this route, the electric wave could quickly swell into a tsunami that sweeps away the internal combustion engine.


Above: Looking at the first half of 2017, Tesla is named the "leading brand" for high-end New Energy Vehicles in China (Source: EV Volumes)

China already has an aggressive zero-emission vehicle (ZEV) mandate, which requires automakers to make ZEVs 12% of their sales by 2020. The policy is driving global automakers to invest large sums in local EV production (and at the same time, to lobby for the requirements to be watered down). GM, VW, Daimler, Toyota and Ford have all recently announced plans to develop new EV models for the Chinese market - in some cases many more models than they plan to offer in their home countries.

Tesla has been active in China since 2014 and, despite some early challenges, is now the leading foreign EV-maker in the market. The company is aggressively expanding its infrastructure in the country - it plans to have 1,000 Superchargers in China by the end of 2017. As a recent article in Teslarati highlights, the Tesla lifestyle is starting to catch on with Chinese consumers.


Above: The biggest Tesla Supercharger station worldwide is being built in the Pudong district of Shanghai, China with 50 Supercharger stalls (Source: Electrek)

As exciting as all these developments are, there’s a policy change in the offing that could blow the Chinese EV market wide open - and confirm Tesla’s position as the leader of the pack. Since 1994, foreign companies producing autos in China have been required to do so in collaboration with a Chinese partner. All the major automakers have established joint ventures to produce vehicles locally.

Now Bloomberg reports that China is discussing a plan to allow foreign carmakers to set up wholly owned electric-vehicle businesses in its free-trade zones. China’s Ministry of Commerce told Bloomberg that it will “actively implement the opening up of the new-energy manufacturing sector to foreigners.” China has already made a couple of moves in this direction, allowing foreign companies to set up 100 percent-owned motorcycle and battery manufacturing operations in free-trade zones beginning in July 2016.


Above: Tesla, with about 9% marketshare, is the only foreign automaker to make it onto China's top 10 list for 2017 BEV market share (Source: Bloomberg)

Every global automaker is surely salivating over the prospect of producing cars in China with no need for a local partner. However, the new policy is particularly relevant to Tesla for two reasons.

First, Tesla is currently not producing vehicles in China - it imports them from the US, which adds a substantial layer of costs. The company has been exploring the possibility of establishing local production for years - it said in June that it was in talks with the government of Shanghai, which includes one of the country’s 11 free-trade zones. However, Tesla’s current level of sales in China doesn’t seem quite high enough to justify the huge investment that would be required. If no joint venture partner is required however, that changes everything: setting up a local factory would be a much simpler proposition.


Above: From Tibet to Beijing to Shanghai, Tesla is catching on in China (Youtube: Tesla)

Second, unlike other automakers, Tesla actually wants to sell electric vehicles. For the legacy brands, producing EVs in China is just a lever they can use to secure the right to sell their highly profitable gas-guzzling trucks and SUVs. While those companies will be fighting to water down EV-friendly policies and otherwise hold back the tide of electrification, Tesla will be cranking up the voltage to Maximum Plaid. As battery costs continue to fall, the market for legacy gas-burners will continue to shrink, in China just as everywhere else. The California company could well end up as the leading foreign manufacturer in the world’s largest automobile market.