Tesla Motors Inc (NASDAQ:TSLA), the luxury electric car maker, is achieving new highs in  electric car production in the home market while industry experts are analyzing the carmaker’s plans for expansion in China.

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The U.S. automaker recently announced it would be opening a dealership in China. However, the electric car segment in China is prone to instability, according to a report from Business Insider.

In June, after the announcement made by Tesla Motors Inc (NASDAQ:TSLA) about the new dealership, China Youth Daily announced that an outlet will be opened in Beijing but it was not yet confirmed.

China a Big Opportunity

The opportunity is good for Tesla Motors Inc (NASDAQ:TSLA) as the demand for hybrid and electric vehicles is still building. Demand is not yet high for the electric cars due to reasons like lack of suitable infrastructure like charging stations. Government, in China, is making efforts to enhance the demand of energy efficient vehicles. China is struggling with the high pollution issue in China and plans to make China a world leader for plug-in electric vehicles.

The Chinese government is offering a mix of tax incentives on purchases, investing funds to make infrastructure and hopefully triggering innovation and production in this field. These measures will for sure benefit Tesla. However, China is also encouraging the domestic electric vehicle market, which may prove to be a challenge for Tesla in the long term.

Domestic Brands Threat to Tesla

The U.S. electric car manufacturer will draw its maximum advantage from the investment made by government in infrastructure. However, China is planning to provide tax benefits to buyers that are mainly targeted towards the domestic manufacturers, which means that the price will not be a key driver of sales. The national tax break for electric vehicles is expired, but China will restart it.

According to an article in Global Times, Tesla Motors Inc (NASDAQ:TSLA) will not be able to take advantage of these tax breaks and Jia Xinguang, an analyst interviewed for the article, said that price and tariffs will lower sales of Tesla.

A Possible Solution

Tesla Motors Inc (NASDAQ:TSLA) is facing opportunities as well as challenges in the Chinese market. Purchasing a Tesla car in China may be easier than that in the USA if Chin develops the EV infrastructure. However, Tesla will face competition from domestic brands.

Previously companies like General Motors Company (NYSE:GM) were able to take the benefit of tax breaks by entering into a joint venture with a Chinese company. It is possible that Tesla might be considering a similar Idea.