Tesla Motors Inc: How Big Of A Problem Is China?

Tesla Motors Inc: How Big Of A Problem Is China?
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The recent boom in EV sales in China suggests the company doesn’t stand a chance against Chinese EV makers

Tesla Motors reported serious problems in China in its most recent earnings report, and now there’s debate about just how bad the problem is. Of course Tesla management is downplaying the issue, but statistics show that the electric vehicle industry in China is booming. If this is indeed the case, then why is Tesla getting left in the dust?

Tesla management downplays China concerns

During the fourth quarter, Tesla only shipped 444 Model S sedans to China, and the situation there is so dire that CEO Elon Musk threatened to fire their entire staff in China. He later downplayed the issue, saying that they don’t need China to meet their sales goals for this year—despite the fact they missed their fourth quarter sales goal by more than 1,000 cars.

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Management in China is also downplaying the issue. The Want China Times quotes Tesla China chief Tom Zhu as saying recently, “Compared with the challenges of start-up businesses, the difficulties and challenges encountered in China are a piece of cake. All of them are predictable, controllable and understandable.”

EV sales are booming in China

But the problem may be bigger than Tesla management is letting on. Levi Tillemann of Fortune reports that sales of electric vehicles are actually surging in China. This is a big turnaround, as in recent years, EV sales were hardly growing there, despite the government’s pledge to beat the west by becoming a powerhouse of electric vehicles.

Chinese officials said they would have half a million electric vehicles on China’s roads by 2011. However, they failed to meet that milestone, coming up far short of the goal as only 6,000 electric vehicles were sold in China that year. Meanwhile sales in the U.S. and Japan have soared past EV sales in China, derailing officials’ efforts to get ahead in EVs.

In the last four months of 2014, however, monthly electric vehicle sales in China were 27,000. This was also the first time EV sales in China were more than the number of EV sales in the U.S., according to the China Automotive Technology Research Center. Researchers with the organization say just in December alone, sales of EVs in China were nearly 30 times higher than they were in January 2014.

One of the reasons researchers at the center think EV sales skyrocketed toward the end of the year is because the government eliminated the vehicle tax on Chinese EVs and qualified EV imports. Perhaps unsurprisingly though, five Chinese EV manufacturers outsold Tesla: electric bus powerhouse BYD, Landy, Chery Zotye and BAIC.

Other possibility, according to Tillemann, is that government purchases of EVs toward the end of the year resulted in especially strong numbers. Additionally, some cities are exempting EVs from the limit on the number of vehicle registrations they allow per year.

So why is Tesla a flop in China?

So why isn’t Tesla able to benefit from this surge in EV sales in China? Forbes contributor Junheng Li also suggests some other reasons for why Tesla is not doing well in China. For one thing, she states that approximately 45% of the Model S sedans imported to China last year have not yet been registered, which means they can’t be driven on the nation’s streets. She offers no reason why so many Teslas remain unregistered.

She adds that what Tesla may fail to understand is that most of the Chinese who buy the automaker’s vehicles are doing so because they are trendy—not because they are good for the environment. She is also very critical of Musk’s threat to fire Tesla’s China staff, noting that talented and experienced automotive workers won’t work for someone who threatens to fire them for very long.

She does give him credit for being “the kind of visionary” employees are able to rally around, adding that his employees have confidence and a purpose under his leadership.

“When he uses that same bully pulpit to whip people, however, it erodes his power base and credibility,” she wrote.

As of this writing, shares of Tesla Motors were up by 0.61% at $205.71 per share.

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