Tesla In China: Promised Land, Huge Risks...Or Both?

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2013 Tesla Model S

2013 Tesla Model S

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Despite its pollution problems, China has never shown much interest in the electric car and sales have been a mere fraction of a fraction of the country's huge new car market.

Not that Tesla Motors [NSDQ:TSLA] CEO Elon Musk is put off by unfavorable odds, as he pushes towards Tesla sales in China.

Some, says the Silicon Valley Business Journal, are calling the move a "huge risk", and to an extent, they're right.

Selling an electric car in China--any electric car, no matter how competent--seems like a tall order. Just 3,000 electric vehicles were sold there in the first three quarters of 2012, barely greater than the monthly sales of cars like the Nissan Leaf or Chevrolet Volt in the U.S.

It's familiar electric car issues holding the cars back, with huge import taxes and range anxiety among the biggest problems for Chinese car buyers. Regular gasoline and diesel automobiles are becoming cleaner and more efficient too, making the benefits of electric cars less clear.

Some may also be concerned that China's power grid is among the dirtiest around the world--not ideal for charging electric cars from.

Tesla remains undeterred, though. While more details are expected after the company's August 7 earnings report, Tesla is said to be opening its first Chinese showroom in Beijing later this year--three times larger than any U.S. showroom.

The company's move into China may have come with impeccable timing too, for a country taking all the luxury products brands can offer. BMW, Audi, Mercedes-Benz, Porsche and other luxury automakers are all enjoying strong sales in the country, and Tesla could well ride that wave when the Model S debuts in China. That Tesla is an exotic, foreign product is another bonus.

Precedence has already been set in Hong Kong, where the company claims hundreds of orders have already been taken.

The Chinese government itself is also supportive of electric cars right now, even if the Chinese people aren't so keen. The government has invested heavily in electric car-producing automakers like BYD.

So Tesla in China--a huge risk, or a shrewd move? It could be both, but some skeptics have one final concern about the company's move to one of the world's biggest car markets.

"I'm far more concerned that the Chinese will take a Model S, tear it apart and knock it off," said Theodore O'Neill of Litchfield Hills Research to the San Jose Mercury News.

Tesla could be a success then, but it's sure to have plenty of budget imitators, too...


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Comments (18)
  1. For Tesla to succeed in China, it would have to put in a supercharger network, like the one in the US, Say three locations each in Beijing, Shanghai, Chengdu, etc., and some between cities. Not an impossible task.

    Two things struck me during my trip to Beijing, Chengdu and Guilin a couple weeks ago: first, I was relieved to see so many two-wheeled electrics, i.e. small scooters, and second, that given the luxury cars I saw driving around Beijing, the Model S would do quite well.

  2. What risk? Worst case scenario is disappointing sales but the Model S is far too much the sort of automotive gadget the Chinese rich are likely to pick up in droves for that to be a likely scenario.

    The knock off risk argument makes no sense. What's stopping the Chinese from buying a Model S in the US, cart it off to the motherland and reverse engineer it? Nothing except in practice it's not that easy to translate the findings from a stripped high-tech product like this into a comparable product. So it seems to me that Tesla and the Chinese government need each other; Tesla needs favourable terms for market access and the Chinese need companies with the technology that could help them solve their oil dependence/pollution problems some day

  3. "I'm far more concerned that the Chinese will take a Model S, tear it apart and knock it off,". If the Chinese (or anyone else) really wanted to do this, they could arrange to do it here in the US as easily as anywhere else. Technical secrets have a pretty short shelf life.

  4. I don't see there being a risk of Tesla's technology being ripped off by another automaker just because they're in the Chinese market. If someone really wanted to do that, what's to stop them from buying a model S in the US, shipping it back to China, and ripping it apart?

  5. I'm afraid that O'Neill is right on the money.

  6. The point that so called "expert" failed to understand is the fact that Tesla is NOT just an excellent EV, it is viewed as an excellent car or one of the BEST sports luxury car.

    In China, the rich would care less if it is EV, they will buy anything that is hot, expensive or a sign of wealth. Tesla is special enough to have a status.

    As far as "knock off" goes, it isn't really a secret. The battery is Panasonic cells. The powertrain is off the shelves. The design is very unique, but I think the EV world can use a "cheaper" well built knocks offs from China. Plus, like other commenters have said, if it was so easy to knock it off, Chinese company would have done it already.

  7. Any extra production of Panasonic-like battery cells may be welcomed by Tesla as cells are a constraining supply item to increasing production.

    Integration is Tesla's magic sauce. While much of the hardware could be duplicated, it would take one heck of a software hack for a mock Tesla knock-off to get any electron-juice from a supercharger. Expierence akin to owing an iPhone without access to the AppStore.

    PS: "Red" is an iconic symbol of wealth in Chinese culture.

  8. I don't think supercharger is a big appeal for the rich elite in China. Those people have multiple cars. Tesla will be just another "status symbol" for them

    Common people can't afford the Tesla S anyway and I don't expect the supercharger network to be ready in China anytime soon.

    With traffic jams, the last thing you need is to go 10 miles out of way to find a supercharger. Sometimes that 10 miles can take days...

  9. Whereas China will have to remain an oil importer, the US is slated to become a net exporter again in a few years. For the Chinese economy, EV's makes more sense in the long term than even in the US. I think Elon knows exactly what he's doing. Anyhow, everyone else is playing in the Chinese market so how could he not?

  10. Jack - I wouldn't hold your breath. I have a feeling the unacceptable environmental damage being caused - and, sadly, yet to be caused - is going to make that very unlikely. Even natural gas fracking is not going to last long - unless we all really abandon all hope of 'saving the planet' - or rather, 'saving humanity' as I'm sure the planet will still be here millions of years from now. Humanity, on the other hand, may not.

  11. China, not the USA, is spending research money to build LFTRs. Liquid Flouride Thorium Reactors were invented in the US in the 1960s but funding was cut off about 1974 partly because they are unsuitable for bombs. LFTRs are inherently safe, produce almost no radio-active waste (and that stored only 300 years instead of 10,000 yrs for conventional nukes), and run on free, yes free thorium (rare earth miners are glad to get rid of it). Since LFTRs are liquid fueled, they cannot experience a melt-down and they are naturally load following (do not require control rods). They operate at low pressure so do not require a large containment building and thorium is simple to refine and does not require the expensive enrichment process for uranium.

  12. More info at http://flibe-energy.com/attributes/
    and http://energyfromthorium.com/

    Bottom line is that China will have cheap non-polluting energy in the future while the US will be still focused on gas and the very expensive alternatives of solar and wind.

    Low cost energy is the prime driver of a robust economy.

  13. You know what, I don't think Musk cares if it is ripped off or not. He didn't get into the car business to make his fortune. He already made it. He's a visionary and he wants to save the planet, and if someone else can make his car cheaper, he probably wouldn't even care as long as EV's win out in the end. He's in the business of putting the oil business out of business.

  14. Elon has been quoted saying exactly what you have suggested. I would like to see the jobs stay in the US but we need to quickly stop spewing CO2 and methane into the atmosphere before it's too late to choose. If cheap Chinese electric cars are part of the solution, then so be it.

  15. I would not be surprised if a few big automakers haven't already looked at a Tesla Model S by looking at its battery pack design and it's power inverter and ac induction motor. I am sure China would be able to set up a straw buyer to buy one and ship it off to China to tear it down in order to reverse engineer it even if Tesla would be actively trying to keep it out of the Chinese market which they are not. Air pollution is terrible in China with dirty coal powered electric grids and many people heat their homes by burning coal rather than clean burning natural gas as we do here in the USA. I would like to see China even try and copy the Model S since most of the parts can be readily bought on the open market so why would they even try?

  16. I would expect that most major auto manufactures have already purchased their Model S and stripped it down. This is common in the industry, they all buy each others' cars to keep up on the competition.

  17. They don't "need" a Model-S. They need a good commuter car. The only reason for the Model-S in China is for a status symbol or for someone with high testosterone.

  18. How to knock it off? It's a hot motor, some big wiring, a variety of battery packs, computer driven console, etc. The problem is trying to do it well in terms of engineering. They can just grow on the experience of BYD and other electric car makers there. Their engineering and design may be lacking but boy can they copy others... Buying American-made for them would not save-face. They need to make it in-country. Buicks do well because they are manufactured in-country and not shipped in from the USA.

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