Elon Musk, the CEO of the electric car manufacturer Tesla, has recently announced plans related to the forthcoming Model 3 vehicle. It is thought that this electric car will be a more affordable vehicle targeted at less affluent consumers, and Musk certainly seemed to confirm that impression this week.
Model 3 to be affordable vehicle
Speaking before an audience at Tsinghua University, Musk indeed described the Model 3 as an “affordable Tesla”, precisely indicating the sort of demographic that the company is likely to aim for. In addition, Musk also outlined the stronger links between China and the United States when indicating that the Tesla corporation intends to manufacture the Model 3 in Chinese factories.
The following is our rough coverage of the 2021 Sohn Investment Conference, which is being held virtually and features Brad Gerstner, Bill Gurley, Octahedron's Ram Parameswaran, Glenernie's Andrew Nunneley, and Lux's Josh Wolfe. Q1 2021 hedge fund letters, conferences and more Keep checking back as we will be updating this post as the conference goes Read More
This can be seen as a significant paradigm shift in the way that Tesla operates. Although the electric manufacturer has sold a significant number of units in the world’s most populous nation, until now its manufacturing has never been based there. Tesla has previously built all of its cars in Fremont, California, and instead imported them to the Chinese marketplace. However, it seems that Tesla is looking to set up new manufacturing facilities in the vast East Asian nation.
The success story of Tesla has already been rapid, but the potential for speedy expansion in China is greater still. When the Model S sedan launched in China two years ago it was expected to be a massive success, perhaps owing to the pollution problems that are well documented in the nation.
When the world’s best tennis players recently appeared at the Rolex Masters in Shanghai, it was not an unusual site for spectators to be wearing the protective masks that are seemingly commonplace in china. More than one player complained about the environmental conditions, and this is indicative of a pollution problem that Tesla believes it can have a serious influence on.
News that Tesla was intending to heavily tap into this apparently fertile market was certainly not bad news for its stock price at the time. Tesla’s Chinese adventures instantly sent the share price of the corporation shooting upward, as investors realized that this could have a serious impact on the long-term profitability of the company.
Tesla’s China syndrome
But despite the initial splash that Tesla made in China, it ultimately underperformed, at least in comparison to the initial expectations of the market. Chinese consumers found that there were insufficient charging points within the nation, and this is proved a serious technical barrier for Tesla. However, the reason for the lukewarm reception for the Model S, at least according to several market analysts, was the fact that Tesla did not fully understand the cultural aspects of marketing and selling cars in China.
There is no doubt that the Chinese marketplace is a unique one. It is difficult for Westerners to imagine the scope and the scale of a nation with a population of approximately 1.2 billion people. But this is certainly no ordinary country, and marketing vehicles in China is thus culturally sensitive.
China has an immensely large urban population, with 106 cities with a population of over one million contained within its borders. To put this figure into perspective, there are nine cities in the United States with a population of over one million, and just two in the United Kingdom. Penetrating the Chinese marketplace means understanding a very different car culture to that which is typical in Western nations.
This vast population means that before you purchase a vehicle in China, it is necessary to actually prove to the government that you have a place to park it. Residents then have to enter a lottery for registration, and it is usual practice for Chinese people to wait as long as five years in order to get a car registered! This certainly puts DMV delays into perspective!
Although electric car owners can jump the queue to a certain extent, this does not apply if the vehicle in question is imported. China also imposes significant import duties on cars manufactured in other countries. This explains why the likes of General Motors, Ford, Toyota, BMW, Volvo, Jeep and numerous other major auto makers have been manufacturing their vehicles in China for at least 10 years.
So if Tesla is going to succeed in China, as much as it considers itself to be a unique and rebellious company, it must submit to the culture of the nation.
Tesla has stated that its new Chinese factory will utilize the same technology that it already implemented in California. It is generally considered that the Model 3 will cost around $35,000, feature a battery range of 200 miles, and be ultimately free from import duties. This rebooting of the Tesla strategy in China is intended to ensure that the company gains a bigger stake in the marketplace this time round.