Tesla to shut outlets in China while local brands further expand

By Wang Yi Source:Global Times Published: 2019/3/11 22:12:48

A Tesla store in Shanghai on Thursday Photo: IC

Tesla is reportedly planning to shut stores and showrooms in the Chinese market after a new round of price cuts, a move analysts said is intended to cut costs to meet rising challenges from local brands, which are expanding their own physical outlets.

Tesla will close some of its locations in China starting in the second quarter and there will be adjustments to two stores in Shanghai, ifnews.com reported on Thursday, citing an unidentified corporate source. The US-based car company will also stop paying Chinese sales personnel commissions, the report said.

"We will shut down many stores, but keep a few presentation platforms, sites, and information centers in high-passenger-flow areas," Tesla's office in China said, according to domestic financial media outlet yicai.com.

Tesla has 64 physical stores in the Chinese mainland market, according to its official website. 

But Tesla on Sunday announced that it will reverse the plan to close most stores and move to online-only sales to save cost for consumers, which CEO Elon Musk announced in late February. The company said that "there are another 20 percent of locations that are under review, and depending on their effectiveness over the next few months, some will be closed and some will remain open." 

The company also said it will raise the prices of Tesla vehicles by 3 percent worldwide on March 18, except for the $35,000 Model 3.

Wu Shuocheng, a Shanghai-based independent auto analyst, told the Global Times on Monday that shutting stores could be the right move for Tesla, because the brand has built up a certain recognition among Chinese consumers.

However, according to Su Hui, an independent analyst based in Beijing, Tesla should not move too far in either direction.

"To build both online and offline channels is a necessary strategy, but Tesla should understand vehicles are Chinese families' second-largest assets. For many consumers, they still need real experience to make decisions," Su said.

"It's necessary to experience the cars in a physical store before making an order," a white-collar worker surnamed Li in Beijing told the Global Times on Monday.

Although Tesla is considered the bellwether of China's new-energy vehicle (NEV) industry, its plan to close stores is unlikely to be copied by domestic competitors at this time. Instead, fast-expanding local NEV manufacturers in China's promising market are expanding their physical outlets.

Shen Hui, WM Motor founder and chairman, said that WM doesn't share the same strategy as Tesla. As a start-up, WM is still expanding its channels, according to yicai.com.

Xiaopeng Motors, another emerging player, is planning to open nearly 70 stores in about 30 cities in the China market, the report said.

Nio, the "Tesla of China", has taken the physical concept further. The 13 so-called Nio Houses and 11 pop-up retail shops throughout China have become sites for the company to tout its business.

"Different stages of development determine different development strategies," Wu said. "It's easy to tell that compared with Tesla, local manufacturers' physical presences are still relatively weak." 

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