Tesla 'brakes' in China over image crisis, despite record Q1 earnings
Published: Apr 27, 2021 06:23 PM
Made-in-China Tesla cars wait to be shipped overseas outside its factory in Shanghai in October 2020. Photo:cnsphoto

Made-in-China Tesla cars wait to be shipped overseas outside its factory in Shanghai in October 2020. Photo:cnsphoto

While releasing record first-quarter earnings on Monday (US time), Tesla CEO Elon Musk avoided any specific mention of the Chinese market, in an apparent attempt to brush its public relations crisis in China under the carpet - a notable sharp contrast to his previous high-profile emphasis on the Chinese market.

The revenue generated in China was not made public until Wednesday, which shows that China revenue increased by 238.1 percent in the first quarter amid customer's quality complaints. With revenue totaling $3.043 billion, China is now Tesla's second biggest market, taking up about one third of the brand's total revenue in the first quarter. 

In comparison, the US, Tesla's current biggest market, saw its revenue totaling $4.424 billion in the first quarter, accounting for 42.58 percent in Tesla's total revenue, down from 46.23 percent in the same period last year. 

That reflected a delicate and sensitive time for the US-based automaker, as it faces a reputational challenge in one of its most crucial markets over suspected quality issues of its cars and a widely criticized public relations strategy. 

Tesla is still betting big on the Chinese market. But its sales in China are doomed to experience a sharp fall in the second quarter and its global sales could also be affected, analysts warned. 

In the first quarter, total revenues rose 74 percent year-on-year to $10.39 billion. Tesla also set records for production and deliveries.

During the earnings release, Tesla said that it expects its Shanghai Gigafactory "will continue to increase quarterly production through the year."

Over 90 percent of the components are now sourced domestically in China, which cuts costs and improves production efficiencies, Tesla said, adding that its exports to Europe and the Asia-Pacific region are progressing as planned.

 "It is undeniable that Tesla has widespread recognition in the Chinese market, especially in first-tier cities. The company's fans are buying into its luxurious brand image and avant-garde intelligent system," independent car analyst Feng Shiming told the Global Times on Tuesday. 

But that image is in serious trouble and the recent protest at the auto show was a watershed, analysts said, with one comparing its impact to "braking a speeding car." 

Observers pointed out that the company's destiny hinges on whether a safety investigation involving a crash in Central China's Henan Province points to a brake malfunction, and Tesla's sincerity in handling the case. Restoring consumer confidence will take time, but if Tesla is found to have hidden quality defects from the public, the company could lose its foothold in the Chinese market, analysts warned.

Zeng Zhiling, managing director of LMC Automotive Consulting in Shanghai, told the Global Times on Tuesday that the protest's impact on buyers' confidence is expected to last for about two months, and this may lead to a drop in sales in China in April and May. 

The exact impact will depend on a third-party determination of whether the incident involved a quality problem or an operating problem, as well as how sincere Tesla will be in resolving the problem, Zeng said.

Last week, Tesla released its data log for a Model 3 owned by a protestor at the auto show that crashed in February in Zhengzhou, capital of Henan Province. 

"If the results point to a malfunction, Tesla needs to recall cars with this defective brake system and immediately stop selling similar types," Feng said. 

If Tesla is found to have intentionally hidden data on defects, it will face fines and other serious penalties, according to Feng. 

The stakes are high as the Chinese market is very important for Tesla to stabilize its global production and sales, analysts said.

"For Tesla, the Chinese market is even more important than the US because the Chinese government has rolled out more support policies for new-energy vehicles (NEV), making the country the world's largest NEV market. China is also an important production base for Tesla," Zeng said.

Tesla's sales in China more than doubled last year to $6.66 billion, according to a filing in February, accounting for about 21 percent of Tesla's sales overall - a far greater proportion than the 12-percent share in 2019.

The Shanghai factory makes the Model 3 and Model Y vehicles, and it accounts for more than 42 percent of Tesla's total production capacity. 

If the incident isn't handled properly, it will be equivalent to labeling Tesla as having quality problems, which will have a great impact on its global marketing and sales, Zeng said.

"Tesla also had problems in communication at the start. With denial and a cocky attitude, Tesla put itself on the opposite side of consumers, which is not a good thing for its image," Zeng added.

The public relations crisis for the otherwise highly popular brand also lays bare issues with the company's service and customer positioning, analysts said.

"The Model 3, which is sold at less than 300,000 yuan (46,260), targets medium-end consumers, whose tolerance for defects is much lower than high-end buyers, and that is partly why complaints over Tesla's quality have erupted since last year," Feng explained.

Last year, Tesla's Model 3 was the best-selling electric car in China.