How Tesla Rides New Energy Wave in China

After launching the Model S with a “consumer-friendly” price in china， Tesla once again drew attention from the public. After the ground-shaking debut， Tesla also revealed its “positive goals” fixed for the development in China.

From accepting orders to revealing the pricing strategies， from the plan of setting up a massive charger network to the program of localizing production， Tesla has shown its ambition and general plan of its development in the Chinese market. As some experts have said， China has an increasing demand for high-end cars and the Chinese government lends strong support for the devel- opment of new energy cars. These two trends are good news for tesla， which is hoping to jump out of the bound by improving its brand awareness in China for the better of sales improvement.

The Changed Pricing Rules

Tesla started to shake the Chinese auto market on January 16 when they announced that Model S， the star product it has brought into China， was to be priced at 734 thousand yuan per unit. The confirmed price is much lower than the market expected. Compared with the price in the United States， Model S’s price in China is higher just because of the imports tariffs， value-added tax， transportation fees， loading and unloading cost. This almost means that Tesla was not purposely to charge more from Chinese consumers for its Model S.

Tesla caught the experts in China’s auto industry off guard with such a bold pricing strategy. Presently， most imported cars sold in China have seen a 20% increase in their original price apart from the essential tax and expenses. That means， if Tesla followed that pattern too， its Model S would be sold with at least 900 thousand yuan per unit in China.

For this， Elon Musk， CEO of Tesla， said that the company’s price tag is not coming out to scare away the Chinese consumers. He also believes that the“high price of a product” to “grab more money from consumers as quickly as possible” is not long-time feasible plan.

According to the information from Tesla， the Model S is worth US$81 thousand per unit in the U.S.， about half of its price in China. The data from AutoHome， an automotive consultancy company， showed that the price of Model S in China was the same of imported Audi S5 and BMW 5GT. In comparison， the two cars are respectively sold with US$64 thousand and US$70 thousand per unit in the U.S. market， according to the data of ， a U.S. website comparing prices of cars.

John Lovallo， an analyst with Bank of America， said that the price of Model S in China was “apparently lower than expected” even though it is higher than its price in the American market. In his opinion， the pricing is very reasonable and can help Model S find a large number of quality consumers in big cities of China. This “game-changing” strategy is likely to bring about impact to the pricing system of other imported cars in China.

Optimistic Over Outlook in China

Musk sticks to the strategy of“earning no more profits in China than in the U.S.” shows Tesla’s expectation of the grand market space in China. On January 23， he said that the sales volume of Model S might catch up with the one in the U.S. by 2015 if things went as planned.

As the largest market for high-end cars in the world， China has seen an increasing demand for high-end cars. It is expected to become an important engine for the future increase of Tesla’s business. Meanwhile， the Chinese government， which is eager to find ways to tackle the troublesome air pollution， spares no efforts in supporting the development of new energy cars， which is the merit of Tesla.

Last November， Tesla set up its first exhibition hall in Beijing with its Chinese official website at the heel. Chinese consumers can order Tesla’s Model S online. The first batch of Model S will be delivered to China at the end of first quarter of 2014.

According to Wu Bixuan， vice president of Tesla China responsible for the business operation， Tesla is going to set up flagship stores in 10-12 Chinese cities by the end of this year. “Tesla is now embracing a ‘positive development goal’，” he said. “We hope the sales in China might contribute to 30%-35% of the increase in the global sales in 2014.”

In 2013， Tesla sold 22，500 units of Model S around the planet. It has expressed the desire to double this figure in this year. If so， Tesla is going to， or has to， sell 8，000 units in China in 2014.

Next Step： Local Network + Factories

In the U.S.， the increase in sales of Tesla was largely attributed to the super charger network that is spread quickly. Now， the “Super Charger Corridor” the company built in the western coast of North America has been put into work， increasing the number of super chargers to 71. Tesla believes that the number of super chargers in the U.S. could be doubled by the end of 2014 as the net-work will cover 80% of the populated are in this country. This figure is likely to reach 98% by 2015.

In Europe， Tesla started its efforts in selling Model S as of last August. The first assembly plant was founded in Holland in middle August 2013. This plant served as not only the final assembly and distribution center of Model S in Europe， but also the headquarters of components and services of Tesla in this continent.

Later， the first group of chargers were said to be established in Europe with most of them in Norway. On January 21， Tesla announced the start of building six new super chargers， which could connect to the Netherlands， Germany， Switzerland and Austria. By then， it has already owned 14 chargers in Europe. But that is far from enough. Tesla’s ambitious plan proposes to take 50% of the populated area in Germany by March and realize the full coverage by the end of 2014.

Its development pattern in Europe might be used by China for reference. After bringing Model S into China， Diarmuid O’Connell， vice president of Tesla’s enterprise and business development department， also announced the plan of building super chargers along the expressways connecting Beijing and Shanghai， allowing the owners of Model S to charge their cars free during their long-distance drive. But no detailed schedule is available from him.

In addition， according to Elon Musk， Tesla might choose to have the cars sold in China produced in China in order to remove people’s concerns about the safety of Tesla and to get the accreditation of Chinese government for the pollution-free cars. “For the long term， it is out of question that we are going to set up a plant in China. What’s controversial is whether this plant is to be the first main manufacturing base of Tesla outside the U.S.”

Industrial experts said that the benefits of localizing the production of Model S in China can remove the high imports tariffs of from its lofty price. Presently， the price of Model S sold in China included the imports tariff and other kinds of tax amounting to US$19，000. In addition， as the Chinese government has promised， consumers that buy the electric cars can get the subsidies totaling 60，000 yuan. In that matter， Tesla’s Model S will see its price lower by 180 thousand yuan if they are produced in China.

Also thanks to the Chinese government’s rules， any foreign auto company must find a local company to set up joint ventures in China if they want to produce their own cars in this country. Another option is to franchise a local dealer to sell the cars， which is not an ideal alternative since it could not help the localization of production. Therefore， if Tesla wants to have Model S produced in China and open the Chinese market quickly， they might need to find a Chinese partner as soon as possible.

In that case， no one can decipher the thought and plan of Elon Musk， whose actions are hard to forecast.