Date
18 October 2017

Tesla revs up China ride in strategic push

At first glance it was just an exotic, sleek sedan, but many Chinese who stopped by at a recent Tesla road show in Zhongguancun {中關村} — known as Beijing’s silicon valley — couldn’t help gasp in amazement as a salesman opened the bonnet of a Model S: instead of an engine lying beneath, there was nothing but a front trunk providing extra space for luggage.

Those who had a test drive were also struck by the iPad-like 17-inch dash board touchscreen that can be used for web browsing and photo-taking. Other novel features – like software background refresh and an application store – that blur the traditional boundary between a car and an intelligent device also fascinated many visitors, as the China Securities Journal noted.

Another surprise was the pricing of the signature marque Model S in China.

While it is common belief that markups on imported cars are here to stay, Tesla has defied that by announcing in late January that Model S would be sold at 734,000 yuan (US$122,589), much lower than the market’s previous estimate of 900,000 yuan. The price includes import tariffs and the cost of transportation from the US but is free of the 20 percent price hike — a usual practice of auto firms to milk extra profit from imported models.

Tesla’s endearing gesture has been received well by many Chinese buyers and the news of the “ultra-low” price quickly circulated on popular social platforms like Weibo and WeChat. An expert with auto information website AutoHome (ATHM.US) commented that the price put Model S in the same league with Audi S5 and BMW 5, and that many of the Chinese middle-class buyers who can afford the up-market marques may take to the more futuristic Model S.

Last October a 24-year-old son of a wealthy factory owner in Zhejiang attracted much media coverage after he bought China’s first Model S, but some immediately wondered if it amounts to nothing more than a show-off of family wealth as the e-car won’t be practical for long journeys due to the lack of compatible superchargers in the country.

The questions were valid, prompting Tesla to take action to surmount the problem.

Diarmuid O’Connell, Tesla Vice President in charge of business development, was quoted as saying that the firm plans to install free-to-use high-speed superchargers along the 1,300-kilometer expressway linking Beijing and Shanghai. Zheng Shunjing , the senior executive overseeing China operations, assures buyers that Model S can run up to 500 km per single charge and that the charging time using the 220-kilovolt Chinese household power supply can be less than four hours.

Although still a preliminary plan, it has also been reported that Tesla will localize production in China. Setting aside some complex issues like finding a local partner, China’s regulatory maze and intellectual property issues, analysts believe the major consideration behind the localization plan is to further lower the price to attract more consumers.

Zheng once revealed that overall tariff for importing a Model S is about US$19,000. If the marque can be assembled in China, Tesla can help its buyers avoid extra costs, not to mention benefits like government subsidies that can be as high as 60,000 yuan per car for domestically made zero emission vehicles. 

Tesla has secured 200 Model S preorders in the country and the first batch delivery is due this March. Reports have also said that the firm has entered into deals with partners like Panasonic, LG Chem and Samsung SDI to secure the supply of more than 2 billion lithium batteries in the next four years.

Tesla chief Elon Musk has said that he aims to double Model S sales this year. According to Zheng, 30 percent of that will be from China. In 2013, the California-based firm sold 22,500 units worldwide. 

– Contact the writer at frankchen@hkej.com

RC

EJ Insight writer

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