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Tesla's road to China

By Liang Fei Source:Global Times Published: 2013-8-16 5:03:05

A Tesla Roadster electric sports car is displayed at a showroom in California. Photo: IC

A Tesla Roadster electric sports car is displayed at a showroom in California. Photo: IC


US premium electric car producer Tesla Motors reported a better-than-expected second quarter performance on August 7, with deliveries surpassing 5,150 units during the period, exceeding the company's expectation of 4,500 units.

Though Tesla still suffered a $30.5 million-net loss in the second quarter, the performance fared better than the $105 million in losses it saw during the second quarter of 2012. Still, news of the company's improved market performance was enough to boost share prices, which surged that day by over 200 percent since April.

In a shareholder letter, Tesla also announced that production has begun on some of its Model S vehicles for European delivery in the third quarter. The company is also poised to tap into the Chinese market with a store in Beijing expected on the near horizon.

"I think we might want to talk about it (China) probably at the next earnings call in more depth," said Elon Musk, CEO and co-founder of Tesla, in a financial results conference call on August 7.

Musk said that the Chinese market could be "a positive upside surprise" and the much anticipated Beijing store may open later this year.

An elite market

The space for Tesla's first store on the Chinese mainland has already been rented at Parkview Green mall in downtown Beijing. With space of around 740 square meters, the size of the store will just about triple that of an average showroom in the US.

Musk said that he has been really trying to understand the Chinese market to ensure the company is making the right product for Chinese consumers.

"We have got to make sure that our product is properly tailored to the desires of consumers in every market," he said.

To appeal to Chinese consumers, Tesla has been improving the comfort level of the rear seat as it is common in China for successful people "to be driven rather than driving themselves," he said.

Tesla opened a service center in Hong Kong last year to better serve the first owners of the company's Roadster model, with its Model S expected to hit the Hong Kong market this winter.

In June, orders for Tesla's award-winning Model S also opened in Hong Kong. In less than a month, the orders surpassed 300 units. Media forecasts further predict that sales of Tesla Model S in Hong Kong are likely to double the number of the current privately-owned electric cars in the city.

"The Tesla brand is often associated with success and elites in the US, which will have an impact on Chinese consumers… I think there will be a small group of elite customers wanting to try Tesla when it lands on the mainland," said Mei Songlin, vice-president and managing director at consultancy J.D. Power China.

It can't hurt either that Hollywood star George Clooney is the proud owner of a Tesla Roadster sports car, the eighth one ever produced. And as the prototype of "iron man," Musk himself will also draw some of his admirers to try Tesla cars, said analysts.

Wang Xiaochun, a senior executive at Chinese Web portal sohu.com, said on his Sina Weibo in May that he is very interested in Tesla cars and is planning to buy one when they come to China. Zhang Xin, a deputy manager at BAIC Motor Group, also speaks highly of Tesla cars.

But Gao Jian, an analyst at industry consultancy LMC Automotive, said that while most people who show an interest in Tesla in China are from favorable IT or Internet industries, the company has "yet to receive wide recognition among ordinary consumers."

Wild card draw

Mei from J.D. Power also noted that despite Tesla's strong appeal to elite customers, the company may be facing a bumpy road in its adventure to China. Apart from weak brand recognition of Tesla in China, a lack of infrastructure such as charging facilities will also push potential customers for electric cars away.

Gao added that the Chinese market is highly "unpredictable" in terms of electric cars. Musk, too, admitted during a conference call in the last quarter that the Chinese market is a bit of a "wild card" for the company's future.

German premium carmaker BMW also introduced its new electric model i3 in July, which is expected to enter the Chinese market next year. Analysts said that the model could make a strong rival for Tesla in the Chinese market with BMW's brand recognition.

Chairman of PC maker Lenovo Liu Chuanzhi has already tipped his hat toward the latter, placing an order for a BMW i3 at the launch event on July 29.

But Musk didn't appear to feel threatened by the BMW i3, which has a driving range of only 160 kilometers, far less than Tesla's Model S that boasts a capability of up to 480 kilometers.

"I'm glad that BMW is bringing electric cars to the market. That's cool. And there is room to improve on the i3, and I hope they do," he said during the conference call.

Musk also noted that Tesla would not mark up the prices of its products too much in China like most other premium brands have.

"The Tesla policy is to try to make the same amount of money on a car in any given market."

The sporty outline, incomparable driving range and a 17-inch touch screen operating pad have made Tesla easily stand out among competing electric cars. Some say that Tesla products are a perfect blend of the IT and automobile industries.

There is no doubt that Tesla's products are strong, but in a country where people value brand over products, it is still hard to say that Tesla will report promising sales numbers, said Gao.

"Also, unlike in the US and Hong Kong, Chinese consumers are still not very open to trying new things at present."

Analysts further predicted that sales of Tesla in China are unlikely to be high in the first several years - probably just in the several hundreds of units, based on previous sales numbers from other high-end electric cars.

"Certainly electric vehicles are a future product in China, however, at this time the market for (private) electric vehicle is extremely small… and I believe the market to remain small in the next few years (due to the costs and infrastructure involved)," said Steve Dyer, partner at consultancy A.T. Kearney.

Only around 11,375 electric vehicles were purchased last year in China, whereas total automobile sales figures were reported at 19.3 million.

"Word of mouth from the first group of Tesla customers in China will be crucial to the company's future performance," said Mei.

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