Tesla Motors Inc (NASDAQ:TSLA) executives have said that they see an opportunity in China that’s as big as their opportunity in the U.S., possibly even as early as next year. But is that realistic? Forbes contributor Jack Perkowski notes that this would mean Tesla will outsell Porsche in China, and he doesn’t think it’s possible.
This week Tesla Motors Inc (NASDAQ:TSLA) revealed the starting prices for the Model S in Hong Kong, and late last month they revealed the starting prices for the sedan in mainland China. Of course China’s prices are much higher than Hong Kong because of taxes, etc., but Tesla is still projecting sales of about 8,000 cars in China this year. That’s according to projections from Veronica Wu, VP of China operations.
Breaking down Tesla’s projections
Wu reportedly said Tesla Motors Inc (NASDAQ:TSLA) sold between 23,000 and 24,000 cars last year and that sales will double this year. According to Perkowski, if China makes up a third of Tesla’s global growth, then that means 8,000 cars sold this year. And if U.S. sales are 40% of all sales, then the automaker expects to sell 20,000 vehicles in the U.S. alone this year and more than that next year.
This means that if Tesla’s China sales are going to match those of the U.S. by 2015, then it would have to sell between 25,000 and 30,000 cars in China in 2015.
Comparing Tesla to other luxury automakers in China
He notes that some luxury automakers already have facilities in China, but Tesla Motors Inc (NASDAQ:TSLA) doesn’t—at least not yet. He says that almost 20% of luxury cars made in China are priced under $50,000, compared to Tesla’s starting price tag of around $121,000. He also said that of the 755,000 cars which were sold for more than $50,000, most of them were priced under $98,500. He included Audi’s cars in with his example.
He went further to say that there were only three luxury cars made in China with price tags over $98,500, and they are the Mercedes E300, the Volvo S8oL3.0 and the BMW 535 Li. Each of those models sold fewer than 15,000 cars in 2013, which he thinks presents a problem for Tesla Motors Inc (NASDAQ:TSLA).
When looking at Porsche, he noted that it’s priced slightly above Tesla Motors Inc (NASDAQ:TSLA)’s Model S because it isn’t made in China either. However, he said Porsche had 56 dealerships in China at the end of September, and it plans to grow up to more than 100 over the next couple of years.
Why the road in China won’t be easy for Tesla
The author suggests that Tesla Motors Inc (NASDAQ:TSLA) must compete as a sports car rather than an electric vehicle in order to be successful in China because EVs haven’t really caught on there in spite of government subsidies for them. Also the automaker hasn’t set up any Supercharger stations in the country, which he sees as a problem.
In addition, he notes that China’s market is very competitive and that Tesla Motors Inc (NASDAQ:TSLA)’s car is still priced above most other luxury vehicles in China. He also sees distribution as being a big potential problem for Tesla. He notes that manufacturing vehicles in China would help reduce the cost of bringing the vehicles to the Chinese market, but he also said that like all other auto manufacturers, Tesla wouldn’t be able to own more than half of its China operation, which means that it will need to work “twice as hard to get the same top and bottom line results” from its sales in China.
China preorders offer a clue
One place that might give us a real clue about whether Tesla Motors Inc (NASDAQ:TSLA) can outsell Porsche in China is seeing the number of preorders the company has taken for the Model S there. We don’t know the exact number, other than the “several hundred” given by management a while back. Another question would be whether preorders have picked up since the price was announced.
Unfortunately these aren’t things we will know unless Tesla decides to tell us, and you can be sure that if the automaker makes an announcement about it, it will be because they smashed expectations.