In what seems like a surprise move to some, Tesla Motors Inc (NASDAQ:TSLA) is trying to gain even more exposure with Chinese consumers by setting up its own shop on TMall. The online marketplace is owned by Alibaba Group Holding Ltd (NYSE:BABA), which is China’s largest online retailer.
Tesla takes a different tactic in China
Tesla CEO Elon Musk has made it no secret that they’re heavily targeting China as an important market, just as other automakers are as well. They have been investing in new stores in China and recently delivered their first Model S sedans to buyers there.
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However, the automaker’s business model has been heavily focused on internet-based purchases. In the U.S., Tesla has been battling auto dealerships in multiple states in defense of its direct-to-consumer sales model, which is largely focused on selling online.
Alibaba is such a major force in China’s online retail industry, however, so on one level, it makes sense to have a presence there. Also Tesla doesn’t have to deal with the limitations it does in the U.S., as China doesn’t have any rules governing auto sales that attempt to prevent automakers from selling directly to consumers.
Tesla takes on unusual competition
Bloomberg’s Jamie Butters pointed out that Tesla’s competition on TMall isn’t the companies it typically competes with in the luxury auto maket. Instead, they’re taking on mass market automakers like General Motors Company (NYSE:GM).
“The automakers that are there are selling mainstream brands like Chevrolet, Buick, and it’s not Bentley selling there,” said Butters on Bloomberg TV this morning. “It’s not Porsche, it’s not the typical luxury competitors. So that’s a little bit surprising, but really, it seems like it’s sort of a defensive move. If Alibaba is going to become the portal to the internet for Chinese consumers, he’s [CEO Elon Musk] going to want to have a space there.”
Tesla will probably keep its China stores
So will Tesla’s presence on TMall replace its actual stores in China? Butters doesn’t think so, and indeed that probably wouldn’t be a smart move for Tesla. For one thing, the Model S sedans that are for sale on TMall are prepackaged models. Chinese consumers who want to buy luxury cars want to pick out exactly what they want, just as many luxury car buyers around the world want to as well.
Also Butters said GM and Volkswagen have had limited success with their Alibaba stores. He said GM sells about 4 million cars a year in China but only a few hundred of those in its Alibaba store. Of course it’s natural that consumers want to see a car before they buy it, so listing the Model S for sale on TMall may be seen as more of an advertising move with the option to turn an immediate sale rather than a move that’s specifically aimed at selling a lot of cars online.