Tesla faces bumpy ride in China

Tesla faces bumpy ride in China

BEIJING, Feb. 22 (Xinhua) — Like Steve Jobs, the founder of Tesla Motors Elon Musk is called a genius and is highly skilled in hype.

With its high-profile debut, the Tesla seems to harbor ambitions to refuel China’s struggling new energy vehicle market. The company has engineered publicity stunts and stimulated stocks on the country’s sluggish A share market.

China, with its abundant local policy hurdles, is proving a hard nut to crack for the U.S. upstart.

As part of Tesla’s marketing strategy, the model S, the carmaker’s pride and joy, was priced at 734,000 yuan (121,300 U.S. dollars), half the price of an equivalent imported gasoline sedan, but still too high to intrigue China’s price-savvy buyers. The model S is nearly three times the price of China’s own electric sedan, which will certainly put a damper on Tesla’s sales.

Besides, Chinese consumers appeared to be uninterested in expensive environmentally friendly cars, Jia Xinguang, a seasoned auto analysts said.

Jia noted that buyers were more inclined toward gasoline vehicles that provide a better driving experience at the same or lower price.

The disinterest was directly reflected in sluggish sales of pure electric and hybrid vehicles last year, accounting for less than 0.1 percent of the market and contrasting sharply with total vehicle transactions.

In 2013, 22 million new cars rolled onto Chinese roads, China’s fifth straight year as the world’s biggest auto market. Tesla is out of step with China’s automobile boom, despite the expected explosion in new energy cars, top-down government aid, stronger environmental awareness and a threatened energy crisis.

The company’s marketing strategy might work in the U.S., but is misfiring in the Chinese market.

Unlike Tesla, China’s leading carmakers have put electric coaches, taxis and inexpensive private sedans as their main new-energy products, the government’s priority in the new energy era.

“Actually, no automakers in China consider electric sedans for individual customers a major development strategy, not to mention luxury cars for high-end buyers,” said Zhong Shi, another auto industry analyst.

Chinese government has supported the new energy vehicles with subsidies to carmakers and making it easy for buyers to register them. This has mainly benefited the electrification of public transportation like taxis and buses. Promotion is easier in those government-led fields.

By the end of 2015, China plans around 300,000 new energy vehicles in 40 cities, over ten times last year’s sales. Analysts expect the increase to mainly be in electric buses and taxis, not luxury sedans.

In response, Tesla is reportedly thinking about opening plants in China and launching models at a range of different prices, to win both the hearts of Chinese car buyers and the preferential policies of the Chinese government. In that case, Tesla will feel the pressure of fierce competition and local protectionism, inevitable during the localizing process.

Tesla’s leaders still have faith in their Chinese future and expect it to contribute greatly to their global revenue.

Tesla’s 2013 revenue increased nearly five times to 2 billion U.S. dollars on a GAAP basis, with an overall loss of 74 million U.S. dollars, way better than expected.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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