Tesla China: A proposed policy change could be a game changer for Tesla

Guest Blog Post: Charles Morris is the Senior Editor of Charged, the magazine of electric vehicles, for which he writes a daily blog and regular print articles. He's also written five books including Tesla Motors: How Elon Musk and Company Made Electric Cars Cool, and Sparked the Next Tech Revolution.

China is fast-becoming one of the world’s top electric vehicle (EV) hotspots. In fact the International Energy Agency announced that, "China emerged as the main electric vehicle market: its booming electric car sales were larger in 2015 than in the United States." A new rule change could heat things up even more, while opening up a huge new opportunity to American EV-makers, especially Tesla Motors [NASDAQ: TSLA]. Currently, foreign carmakers are allowed to produce vehicles in the country only through a joint venture with a local partner. Now China’s National Development and Reform Commission and Ministry of Commerce have proposed to relax those laws for makers of "new energy vehicles."

Above: Tesla could show significant future growth in China (Image: Electrek*)

Earlier this summer, Bloomberg reported, "Manufacturing in China would allow Palo Alto, California-based Tesla to avoid a 25 percent import levy, making its electric vehicles more competitive... [however] foreign automakers that want to set up manufacturing plants in China have to do so through joint ventures in which they can own up to a 50 percent stake." Proposed policy changes could eliminate the requirement for a joint venture.

Above: Tesla Supercharger station in China (Image: EV World)

Furthermore, Electrek reports, "China’s change of heart is motivated by its ambitious goal to have 5 million EVs on the road by 2020 in order to achieve its target to reduce carbon emissions. The country is aggressively pushing for electric vehicle adoption, and introducing more competition at the manufacturing level could certainly help." And, avoiding China's 25 percent import levy coupled with attractive local EV incentives could give Tesla a significant in-market competitive advantage.

Above: Tesla Store in Shanghai (Twitter: Tesla)

Nevertheless, details of the new policy have not yet emerged. While global automakers are surely elated at the prospect of more access to the world’s largest market, we’ll have to wait for more particulars before we know which companies will gain most. Will the new rules include hybrids and/or fuel cell vehicles? If so, Toyota stands to benefit. If plug-in hybrids are favored, then Mitsubishi, Porsche and others will be cranking out their plug-in SUVs, which Chinese buyers love (they also love the perks that often come with new energy vehicles, even if they live in apartments and seldom plug in their PHEVs).

Above: Tesla Model S in China (Image: Gas2)

The biggest winner seems likely to be Tesla, which is already the leading Western EV-seller in China. A record 43,441 plug-in vehicles were sold in China in November. 95% of those were domestic brands (the top seller is something called the Zotye Cloud EV), and 3% were Teslas (yes, Tesla outsold all other foreign EV-makers combined). The Californians hope to sell 10,000 units in the Middle Kingdom this year.

Above: Estimated electric car registrations in China in November 2016 (Source: CleanTechnica*)

As the voltage level continues to rise, it’s no surprise that Tesla is keen to build a local factory. Earlier in 2016, Elon Musk said the company planned to choose a location and a local partner by the middle of 2017, but we haven’t heard anything since. The government’s move was not unexpected - it was hinted at some months ago - so once the relaxed rules are confirmed, it may be that an announcement of a Chinese Tesla plant will follow.

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*Source: CleanTechnica, Electrek