Doug Young
 Tesla launches trade-in program. |
Bottom line: Tesla and other EV makers is likely to face an uphill road in China for the next year, but prospects could start to improve in mid 2015 as new initiatives gain momentum.
Reports on a new trade-in promotion from Tesla (Nasdaq: TSLA) are recharging talk earlier this month that the high-flying electric vehicle (EV) maker isn’t doing as well as hoped in China, where sales have gotten off to a slow start. This kind of a sluggish start isn’t too unexpected, since EVs are rare in China and face many obstacles despite a strong push by Beijing to boost the sector. Tesla should be commended for its numerous efforts to promote EV development in China through a wide range of initiatives, but is also largely to blame for the building disappointment after it built up huge expectations for itself in the market.
Tesla drove into China with huge fanfare back in April, when charismatic chief Elon Musk came to the country to deliver his company’s first car in a widely covered event that coincided with the nation’s largest annual auto show. (previous post) After that Tesla announced a series of initiatives to promote its EVs, mostly aimed at building the necessary infrastructure to make car ownership more attractive.
But then the glitter started to peel off of Tesla’s slick veneer when media reported earlier this month that its China chief Veronica Wu had left just 9 months after joining the company. (previous post) That led to widespread speculation that Tesla was facing more headwinds in a market where it had previously indicated it could sell as many as 8,000 vehicles per year, second only to the US.
Now in the latest signal of the company’s uphill struggle, media are reporting Tesla has rolled out a new program allowing car owners to trade in their old vehicles towards the purchase of one of Tesla’s Model S sedans. (English article) Tesla announced the program in a statement, and said buyers in Beijing, Hangzhou and Shanghai can use the value of their old cars to help pay for a new Model S, which is currently priced at 648,000 yuan in China. ($104,000).
The reports say Tesla has exported about 3,500 cars to China since launching sales there in April, but its registered car park has only added about 2,000 vehicles during that period. That would imply that the company’s actual sales and pending orders awaiting delivery are probably in the 2,500-3,000 vehicle range far less than the 5,000 vehicles per year that it hopes to sell in the market. Of course the company hasn’t been in China for a full year yet; but its current sales would still only translate to about 3,700 units sold on an annualized basis.
Of course, Tesla isn’t the only EV maker that’s had a tough time in China. The other notable case is domestic industry cheerleader BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF), whose shares went on a roller coaster ride earlier this month when a report came out spotlighting many of the company’s troubles.
BYD’s shares tumbled nearly 30 percent in a single day after the report came out, prompting the company issue a statement refuting some of the claims, including one that billionaire backer Warren Buffett was preparing to sell down his 10 percent stake. (company announcement) Since then the shares have bounced back somewhat, but they’re still at about half their 2014 high hit back in September.
All of this shows that both domestic and international EV makers will continue to face an uphill road in China, which isn’t too surprising due to the high degree of skepticism towards the sector by local car buyers. I personally think we could see a subtle shift around the middle of next year, as many of the new infrastructure initiatives come on stream and local governments boost their buying to support Beijing’s policy objectives. When that happens, look for prospects of companies like Tesla and BYD to finally start improving, though the shift could come slowly.
Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.
