Tesla is Struggling in China

Tesla’s CEO Elon Musk is a versatile investment talent， he once made a killing by participating in the establishment and investment of world’s largest online payment platform―Paypal. His subsidiary company Space X’s ‘dragon’ space capsule returned to earth after successfully docked with international space station， which started a private operation era for space transportation. But this time， Musk met a stumbling block in China. Tesla Motors is obviously not acclimatized after entering into China， its policy measures in marketing and many other aspects are all in trouble now.

Recently， Elon Musk， CEO of Tesla Motors publicly said at a news conference that his company has a low sales in world’s largest auto trading market― China. Although no transparent and detailed business data was published， he expressed his disappointment with the fact that electric cars sales was far below the expected target， “China is the only market that has inventory accumula- tion and unsalable trend.” Meanwhile，‘angry’ Musk blamed on speculators and ticket scalpers for creating an illusion of extremely high demand in the market.（When speculators cancel the order， inventory increased correspondingly.）

It is reported that Tesla Motors sold 2500 vehicles last year， and unsalable vehicles were over 2000. Moreover， its company in China was reported by media that it is under a large scale of downsizing， some media said the proportion is even as high as 30%. According to Reuters， in March， Tesla only sold about 120 Model S in China， which is far below its target. And Musk once expected sales in China will be equal to that in America as early as 2015.

Within one year， Tesla Greater China changed three top managers， which reflected Musk’s helplessness and anxiety in the expanding of Chinese market. Nevertheless Tesla’s problem in China is not easy to be solved by simply changing top managers.

Meanwhile， according to data of China Imported Car Trade Co.， LTD， in 2014， Tesla’s customs import volume was 4800， but real quantity was 2499， which was far below the company’s target of 10000. This is a dull thud for Tesla who insists ‘zero inventory’. For a while， the development of Tesla in China seems to be at a ‘dead end’.

The Reason for Tesla’s Failure

Firstly， Tesla’s expectation is too high for Chinese market.

Its predicament in China obviously is out of Musk’s expectation. Because of halo effect， Tesla has been popular all the way since it entered into Chinese market last year. Last April， Musk went to China to deliver cars to China’s first buyers， he also felt Chinese passion for the cars， and his expectation for this market became higher and higher. In the following month， Tesla’s sales target for Chinese market was increased from 3000 to 10000 vehicles； Tesla’s staff number in China also was largely expanded in the second half of 2014， increased from less than 20 to over 600.

“Tesla made a wrong expectation for the sales in Chinese market. It’s not because of the ticket scalper， but we actually received many of such demand， which made us make such expectation. The sales condition in Chinese market is actually resulted from our wrong expectation for the sales. Of course we hope we can make a more accurate expectation.” Ricardo Reyes， vice president of Tesla’s global brand communication said， “In the future， we would make sales forecast according to the actual delivery quantity instead of making socalled optimistic estimation blindly.”

Gong Yan， professor of China Europe International Business School said，“When Musk and his Tesla team decide to enter into Chinese market， he has a very limited understanding for this huge Asian market. Hype generated by media and part of the public enhanced Tesla Motors’s high expectation for its sales， which made it set its target at a level that is hard to be achieved.”

Secondly， Tesla insists that business in Chinese market should be in line with the world.

Tesla’s sales principle in Chinese market maintained in line with the world. Last year， Tesla planned to cooperate with Tmall during Double-Eleven Shopping Festival. Although Jerome Guillen， Tesla’s vice president of global marketing agreed to this plan， it finally was cancelled due to Tesla’s American office’s ban on changing of direct sale model.

By the end of 2013， Chinese buyer needs to pay RMB 250，000 down payment in advance for book a Model S. But Tesla’s American office asked Tesla to adopt the same standard in China， in its final released pricing method， buyers only need to pay RMB 15，000 down payment. It is said that many top managers have raised objections， according to them， such low default costs may lead to purchase order escaping. Until November 2014， Tesla’s American office ultimately increased the down payment to RMB 50，000.

Tesla’s sales model is： customers only need to pay RMB 15，000 down payment， then can book car through official website or stores. Tesla would arrange the car production according to customer’s requirement. From the model， Tesla’s on-demand production model avoids any possibility of excess inventory， thus eliminated middle agent and sales person， and gives itself enough space for making profit.

Nevertheless， high profit often comes with high risk. From booking to delivery， it needs ten months at early age， and about four months currently. In such a long period， consumers entirely possible to change their decision， they won’t care the RMB 15，000 down payment since they can spend RMB 600， 000-1000， 000 to buy a car.

Silicon Valley’s scientific thinking also speeded down Tesla’s forward pace. Musk clings to Silicon Valley’s business logic， not knowing how to be alternative also hindered Tesla’s development in China. Most notably， Musk’s insisting on‘global consistency’， which made Tesla won public praise while pushed Tesla into the abyss in Chinese market.

Thirdly， facilities did not keep up with the times.

One buyer who booked a car but later cancelled the purchase order said，“He has a fixed parking place in his living community， but according to property management， charging point is not allowed to be installed in community.”

He also said， “In Beijing， regulations on Tesla’s charging station is not enough， many exclusive parking spaces for Tesla’s electric cars were used by traditional gasoline automobiles.”

So far， automobile’s design and production are still very difficult， and need a plenty of money， particularly for innovative auto such as Tesla. In addition to this， Tesla needs a plenty of money to establish charging point. If you are a traditional automobile manufacture， you may be frightened.

Fourthly， Tesla relied too much on‘public praise’.

Luxury cars such as BMW， Benz and Audi have already invested largely in Chinese market and accumulated a profound marketing resources as well as a number of loyal customers. One staff of Benz said， “Tesla is a new comer in Chinese market， plus eclectic car is a new product， it’s hard to win praise from customers who targeted for luxury cars， and what’s more， Tesla’s electric cars got both praise and blame in China.

For example， some buyers blamed for Tesla’s poor navigation experience， unperfected automotive interior， a shortage of recreational service of internet， bad after-sale service and different treatment for new and old buyers.

From the above， we can see that Tesla’s ‘public praise’ policy has a very high risk. Any unsatisfied using experience would affect Tesla’s sales and brand image. And Tesla also has many uncontrollable problems such as charging point.

One staff from Audi said， “In China， the whole automobile using environment and automobile culture education lag behind Western countries. And not many people in China would like to buy the green car”.

Lastly， Tesla’s price is too high.

Tesla’s high price is not beneficial to its development in China. It is learned that because of import taxes， a Tesla S model electric car’s selling price is RMB 685，000 - 983，000 in China. Compared with its selling price in America， there is a huge gap in price. Although in order to encourage public to change the way of automobile consumption， Chinese government promised to give electric automobile buyer welfare allowance， but this is not enough to cover the import tax price difference. Therefore， Tesla can not attract customers simply by price advantage.

Tesla Is Making Changes in China

After struggling in many ways， Tesla is making some changes in China now. At least， in the aspect of marketing communication， Tesla is now taking a more positive and more proactive way when contact with the public and media. In the past months， Tesla had launched multiple marketing initiatives， including held the media Open Day， Customer Enjoy Plan and value maintenance service. Ricardo Reyes， vice president of Tesla’s global brand communication even came to Beijing to meet media be-fore took part in Shanghai Auto Show in April.

After being through all these， Tesla has a more understanding for Chinese market. “Obviously， this market is very unusual； it has its own characteristic.”Ricardo said， “Tesla used to think that Chinese market is as same as American market， but actually it is wrong， for example， the education on charging point is different between the two countries.”

Therefore， Ricardo believes the education on electric car among the public is his main target and focus in China recently. “I hope the public not only know our brand， but also know more about electric car， which is better than traditional gasoline car.”

Musk， Tesla’s CEO also said that his company is committed to expand Chinese market for a long time， and would realize localization of production in three years. Musk said， Tesla is building more “super charging points” in China， and is providing all Chinese customers portable power source， which can allow them to charge anytime and anywhere. And in order to attract more buyers in China， Tesla decided to offer customers free charging equipment. This equipment can be used in over 50 stores in China， and can be fully charged in one hour. Besides building charging facilities， Tesla also decided to open more stores outside the service center. Meanwhile， Tesla will improve its map and navigation system.

Future Development of Tesla

Musk believes， Chinese government is taking measures to prevent atmospheric pollution， for example， a stricter control on automobile exhaust volume and fuel consumption， and limited car purchase quantity. Therefore， it would be beneficial for the development of green car. And Tesla has a huge potential for sales growth in China.

Musk admits： Tesla will not make profit by the end of 2020， but its sales volume will surpass Volvo’s in 2020. Tesla decided to increase this year’s capital expenditure to USD 1.5 billion（about RMB 9.2）.

This year， Tesla’s strategy in China will be more realistic， and will sell new products. On the base of Model S P85D， it will sell SUV Model X in America in September. This car will be introduced to Chinese market in early 2016. And Model 3 will be on the market in 2017. Meanwhile， Tesla will continue to focus on high-tech driving experience， including cooperates with Google and Apple on auto software.

Of course， in order to make a breakthrough in Chinese market， apart from “high-tech innovative thought’， Tesla also has to face competition pressure from other electric car producers such as German BMW and Chinese BYD.