Tesla Struggles in China

Published on Author heardd16

Our friends from Economics 244 (The Economics of the Auto Industry), taught last Spring Term, will remember the splash Tesla Motors had just begun to make when the first Tesla Model S reached China in April 2014. Almost a year later, Tesla continues to struggle for footing in the Chinese electric automotive market, where sales account for 30% of its global target. Tesla has exported 3,500 cars to China thus far, 30% less than the 5,000 vehicle sales target [the prof: 30% x 30% = 9% short].

One challenge is the lack of necessary infrastructure. While Tesla has already installed 52 free charging stations and 800 other charging stations in over 70 cities, perception about the ubiquity of charging stations among the target segment has dampened sales. Elon Musk blamed “unexpectedly weak” sales on a “‘misperception about charging,’ saying owners worried about not being able to charge up at home” (New York Times). Worries about charging at home may be valid however. As Tesla’s target segment in China consists primarily of wealthy urbanites living in apartments, installation of charging stations in their apartment presents issues. Potential consumers have cited that difficulty as a deterrent to buying electric cars. Charging takes up to three hours, a long period of time to wait around a public place for a car to recharge.


While we can expect expansion in the electric car market over the next five years, domestic producers have an advantage over foreign producers such as Tesla. The Chinese government, to encourage China’s growing number of certified drivers to go green, has begun subsidizing all purchases of domestic electric vehicles. Although the Chinese government does not subsidize Tesla purchases, the reality is that Tesla consumers in China are typically wealthy enough that they do not need a subsidy. Further, Tesla owners have already established communication networks to charge at each others’ charging stations until charging stations installed in homes become more commonplace.

Source: NYTimes, Feb 11

3 Responses to Tesla Struggles in China

  1. BYD, of fame in the US thanks to an investment by Berkshire Hathaway, focuses on electric vehicles. It is faring poorly (as are all or almost all of the other purely domestic firms focused on passenger cars). Sales problems are not just Tesla’s.

    The ubiquity of smart phones makes setting up an app to find and arrange to share charging stations a neat idea. Of course if the owner’s at home, the station will be in use. Now I don’t know what the Tesla range is if you’re stuck in traffic with the air conditioner on high. Even if distances traveled may be small, the load on the battery pack may not be.

    Finally, one of the advantages (maybe the only one) of a Tesla is to show you’re able to afford one. That segment is very competitive in China, and I suspect that Tesla is not sufficiently “visible” — well-enough recognized by the hoi polloi — to provide that benefit. Managing the PR to be able to sell in multiple cities is I suspect a losing proposition. But Elon Musk doesn’t care: through an IPO he found suckers to offload his stake, and yet leave the company with enough cash to lose money for many years to come.

  2. This blog post appears particularly interesting to me as my auditing class studied about Tesla and assessed its fraud risks today. We drew a lot of potential fraud risks from the company’s weak financial performance presented through negative key financial ratios (ROA, ROE..), its huge debt in 2012, its being on the verge of bankruptcy in 2008, and exceptionally high gross margin during the last four years. Despite its strong position in the auto industry, Tesla might face the risk of bankruptcy again.

    Also, according to Elon Musk, Tesla doesn’t have any demand problems globally: Lots of people want to but its cars. The challenge is in actually building, and then delivering, enough cars to satisfy demand without making customers wait too long to get their vehicles. To address these issues, Tesla will spend a “staggering” amount of money to build more Model S sedans and, soon, Model X SUVs. However, he also said that Tesla intends to grow funds through its operating cash flow instead of considering any new capital raises. The company’s current financial performance would make it difficult to do so.

  3. Elon Musk’s recent actions reflect a growing concern that Tesla Motors, Inc. has a grim future in the Chinese auto-industry. The company plans to cut its jobs in China by 30 percent, laying off 180 of the 600 employees, due to the fact that sales have not met expectations. Tesla’s former China president, Veronica Wu, has also left the company. Perhaps the electric car industry will experience a resurgence in the future, but as of now it appears that Tesla may be wasting its time in China.