Tesla Revs Up China Engine

Tesla sets ambitious China targets

US electric car maker Tesla (Nasdaq: TSLA) is setting some tough goals for itself during its first year in China, aiming to take advantage of government incentives and its high-end brand image to quickly take a big share of the market. I did a little math based on the company’s latest remarks, and its ambitious target for this year would represent around three-quarters of all electric vehicles sold in China in 2012. If it really can meet the new target, I suspect the company’s biggest strength will be its position as a luxury brand, since most people who buy EVs in China will probably do so more for the snob factor than due to any incentives from Beijing or desire to save the environment.

Tesla was in the China headlines late last year and again in January due to a trademark dispute after a local company registered the Chinese version of its name. (previous post) But Tesla’s China chief said the dispute has been resolved, which should pave the way for it to offer its cars under both its Chinese and English names. (English article) The trademark squatter had reportedly wanted up to $30 million for the Chinese name, though Tesla declined to give any terms of the settlement.

With that distraction behind it, Tesla’s new China chief has laid out a roadmap that would have China contributing one-third of the company’s sales growth this year. Tesla sold about 24,000 cars last year and aims to double the figure this year, presumably meaning this year’s growth should also be about 24,000 cars. If China contributes a third of that, then the company would have to sell about 8,000 cars in the market this year. It would do that by opening about a dozen sales outlets in China during the year, including its recently-opened flagship store in Beijing.

That looks like quite a tall order for a market where all electric car sales totaled just 11,375 vehicles in 2012, and the number was on track to reach that level again in 2013. Tesla’s cars aren’t cheap either. The company has announced its EVs will sell for 734,000 yuan ($121,300) each in China, or about 50 percent higher than what they sell for in the US. That price tag is considerably higher than most models currently in the market, which come mostly from domestic names like BYD (HKEx: 1211; Shenzhen: 002594), Chery and BAIC.

Beijing last year announced new incentives to try and sell more electric cars, giving buyers around $10,000 in subsidies for each car. But price is just one of the obstacles preventing such cars from gaining traction in the market. Other big factors have been the availability of charging stations, and reliability due to the inexperience of Chinese car makers. Beijing has set out a goal of having 500,000 EVs and hybrid vehicles on its roads by 2015, and 5 million by 2020. Much of that could come from pilot programs by local governments, which have better resources to build up taxi and bus fleets comprised of electric, hybrid and other clean energy vehicles.

So, why do I think that Tesla may actually meet its ambitious sales target in China this year? If we take a look at all the major obstacles I mentioned, none of them really applies to Tesla. The company’s cars already enjoy a reputation for good quality and reliability, and anyone who can afford one can probably find ways to charge it without too much difficulty. Perhaps most important is the snob factor that I mentioned at the outset. Newly rich Chinese are always looking for ways to show off their wealth, and buying a trendy and prestigious Tesla could be just the way to achieve that goal. In that light, Tesla’s goal of selling 8,000 EVs in China this year doesn’t really look so impossible.

Bottom line: Tesla could stand a good chance of meeting its goal of selling 8,000 EVs in China this year, drawing on its reliable products and high-end image among brand-conscious Chinese.

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