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Tesla struggles to be relevant in China

Tesla sold merely a few thousand cars in China last year, a tiny portion of the total 1.4 million luxury cars.

The number falls well short of the brand’s hot popularity in the country. This is because Tesla did not gain fame based on the product. Instead, media curiosity helped boost the EV brand. But curiosity never lasts.

Prior to Tesla’s first quarterly financial report in 2013, automotive professionals in China had never heard of Tesla. Although the Obama administration had been pushing for electric cars since its inauguration, it was forced to bail out two of the Detroit Big Three in the wake of the 2008 financial crisis, leaving no resources for electric carmakers. Tesla’s miraculous Q1 profit reignited government and investor enthusiasms on electric cars, especially among U.S. financial media.

The Chinese media naively embraced the American media and started an intensive Tesla coverage. The press fever created a Tesla cult, and Elon Musk became an idol of innovation among Chinese automotive circles. At the climax of such media hype, Tesla smoothly debuted the Model S in the Chinese market with virtually free publicity.

The Model S was a huge success upon introduction. Celebrities had to wait for deliveries. Central and government officials frequented the company in Silicon Valley and China’s largest city even promised free land for charging stations and incentives for setting up assembly plant. This dreamlike debut misled Tesla to believe that the Chinese market is potentially bigger than the U.S. and much easier to navigate because it may not have to go through franchised sales.

In fact, Tesla drastically underestimated the complexity and difficulty of the China market. The initial Tesla fad dried up rapidly. According to official data, only half of the 5,000 imported Model S were sold to end-users in 2014. Tesla wanted to build charging stations using its own standard, not willing to make compromises to local authorities. Elon Musk’s cowboy like, one-man-against-the-whole-world mentality failed in China. Other foreign OEMs that came into market earlier as well as local players understand the dynamics of the China market much better, progressing in much smaller steps in the EV market.

Tesla China’s management team has been in constant change, indicating a lack of experience in recruiting the right executive talents in China. Tesla may have a unique EV in terms of styling and manufacturing, it cannot deviate from the basics of sales and marketing, especially in a less mature market. It is unwise for a new player in China to assess the performance of its sales executive based only on short-term numbers.

China is soon to become the world’s biggest luxury car market and competition will be white hot. Even mainstream brands need multiple and frequently updated models to survive here. Tesla cannot sustain its market share with one Model S. There has been a significant lag between the introduction of the Model X from the Model S. It will also be too long for the introduction of the next mass-market Model 3. Competitors such as the GM Bolt, BMW i3 and i8 will also eat up Tesla’s pie.

Although a great pioneer in vehicle electrification, Tesla might not be the final beneficiary of the booming EV industry. There is not much room, nor time, for trial and error in China. If Tesla cannot align itself with local interest and need, it will continue to be irrelevant in China.

(Rewritten by Kevin Wang based on author’s article on cbuauto.com.cn)

 

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