CARS: Tesla Hits New Speed Bump, BAIC Takes Middle Road
Bottom line: The resignation of Tesla’s China president hints the company is getting off to a slow China start, while BAIC’s Hong Kong IPO will get a lukewarm reception and trade flat to down over the next year.
Mixed signals are coming from China’s car sector, with state-run automaker BAIC getting a so-so reception for its upcoming IPO as US new energy superstar Tesla (Nasdaq: TSLA) suffers a setback with the departure of its China president. Among these 2 news bits, the one involving BAIC doesn’t come as a huge surprise, since I wasn’t expecting much from the IPO for this stodgy state-run firm. The Tesla news will disappoint the company’s overseas boosters and electric vehicle (EV) fans in general, and hints that this new energy superstar’s drive into China isn’t going as smoothly as hoped.
Let’s begin with the Tesla news, as that’s the sexier of these 2 stories due to the company’s extremely high hopes for China created by its charismatic chief Elon Musk. The latest headlines say Tesla’s China President Veronica Wu, or Wu Bixuan, has resigned after just 9 months on the job. (English article; Chinese article) Tesla declined to comment further on Wu’s departure, but one analyst said the move may reflect slower than expected progress in developing the China market.
That shouldn’t come as a surprise to anyone if it’s true, as Musk has built up huge expectations for his company in China since Tesla delivered its first vehicle in the market back in April. That sale came after Tesla cleared up a messy trademark dispute, which was just one of the many problems it will face likely face in the huge but difficult China market.
The other bigger problem it’s facing is infrastructure, which is one of the few points that the company addressed in its most recent quarterly report. Tesla has announced a steady string of tie-ups to build new charging stations in China with various local partners, but only had 23 supercharging stations in the country at the end of the third quarter, according to its report. (company announcement)
Tesla is undoubtedly working hard to build many more such fast-charging stations in China, and most of the partnerships announced so far are for hundreds of slower-charging stations. Still, the latest quarterly report contains no mention of China sales, hinting there’s not much good news to tell. Previous reports had indicated Tesla hoped it could sell up to 8,000 vehicles in China this year, and back at the beginning of this year Musk was saying Chinese sales could match US levels as soon as 2015.
This abrupt resignation of its China president after such a short period certainly hints that none of those plans are progressing as quickly as Musk would like. Finding a new China president to execute his vision will probably take at least a few months, meaning Musk is unlikely to see his China dream realized until 2016 at the earliest.
Meantime, the latest news on BAIC has the company pricing shares for its upcoming Hong Kong listing at HK$8.90 ($1.50), or slightly above the midpoint of their previously announced range of HK$7.60 to HK$9.80. (English article) That should allow the company to raise about $1.4 billion, and would see BAIC’s shares trade in Hong Kong alongside rivals like Geely (HKEx: 175), Dongfeng (HKEx: 489) and BYD (HKEx: 1121; Shenzhen: 002594) when they make their debut.
I’ve never been a big fan of BAIC, which has made past headlines for buying designs from struggling overseas automakers and doesn’t seem very innovative or cutting edge. What’s more, the company will have to compete for investor attention with a number of other major year-end IPOs that look sexier. For those reasons I wouldn’t expect much from this stock when it makes its trading debut, and would expect it to trade flat to down over the next year.