Tesla Motors all-electric Model S sedan has been well received in the United States, and deliveries have just begun in Europe.
Now Tesla is getting ready to take on the world's largest auto market: China, which CEO Elon Musk has described as a "wild card" in the company's future.
Tesla is in a quiet period as executives prepare for the company's Aug. 7 earnings report, and a company representative declined to comment for this story, saying only that Tesla is likely to release more news on its China strategy next month. But tidbits about Tesla's plans have dribbled out in the Chinese media and from auto experts in Asia.
Its first showroom in mainland China, scheduled to open later this year, will be in central Beijing at the exclusive Parkview Green mall, a gleaming, pyramid-shaped plaza designed with sky-gardens and atria spaces. It is the first mixed-use commercial project in China to be certified LEED Platinum for its energy-efficient design, and Tesla's 8,000-square-foot showroom will be roughly three times larger than its U.S. showrooms.
Auto industry analysts say Chinese consumers' growing appetite for luxury automobiles makes it a natural market for Tesla to tackle. Roughly 19 million vehicles were sold in China last year. Luxury brands like Audi, BMW, Mercedes-Benz and Porsche are increasingly popular, and analysts say that Tesla is likely to market the Model S as a luxury vehicle that happens to be an electric one.
"China is the biggest auto market in the world, and that's why Elon Musk is really pushing for sales in China," said Mike Omotoso, senior manager of global powertrain forecasting at LMC Automotive in Troy, Mich. "The showroom is being built in Beijing's equivalent of Rodeo Drive. The Model S may be a good way for the Chinese to say `I'm wealthy, but also environmentally responsible.'"
Air pollution is a notorious problem in China, and the government is a strong supporter of electric vehicles, particularly of domestic automakers like BYD and Kandi. And a December report by McKinsey & Company found that spending by Chinese consumers on luxury products, from jewelry to clothing and cars, now exceeds that of any other country, including Japan.
"Tesla will sell successfully in China because it is a very high quality and well engineered automobile, a luxury brand and it is foreign made," said Charlie Paglee, CEO of Brannan Auto Engineering in Shanghai who has lived in China for more than two decades.
"Chinese customers will buy the Tesla to show off their wealth and demonstrate their love of the environment. Tesla will be successful in China because they have already become a status symbol in the USA and that standing will translate to China, similar to the prestige of owning an iPhone."
Earlier this spring, an analyst asked Musk what geographic demand for the Model S was looking like given that roughly one in four reservations for the vehicle are from outside the United States.
"I think we will see probably at least 10,000 units a year from demand in Europe, and then at least 5,000 in Asia," said Musk during the May 8 earnings call. "But I mean, that could be, obviously, a much bigger number and China is kind of a wild card here."
Not everyone is bullish about Tesla's prospects in China. The EV market there is in its infancy, and the lack of charging infrastructure is an issue. The Chinese government does not currently offer any incentives for imported electric vehicles; Tesla's Model S is likely to be subject to import and luxury taxes that could double the car's already steep price. Others worry about Tesla's intellectual property being stolen.
"Huge risk," said Theodore O'Neill of Litchfield Hills Research. "I don't see the China market as having any meaningful impact for Tesla's numbers over the next 18-24 months. I'm far more concerned that the Chinese will take a Model S, tear it apart and knock it off."
Tesla currently has a service center in Hong Kong that assists owners of its discontinued all-electric Roadster and handles Model S reservations.
"Hong Kong and China are actually quite different markets. Hong Kong is an extremely wealthy island state with very short commutes, which is ideal for the introduction of electric vehicles like Tesla," said Christopher Foss, senior manager at Dunne & Company in Hong Kong. "Mainland China is a huge country with massive cities typified by urban sprawl, constant traffic jams, and long commutes. But by 2020, China will account for half of all luxury vehicles sold worldwide. So there is certainly strong growth potential for Tesla in the Middle Kingdom, if conditions to provide enough charging stations for the vehicles can be met."
Kingston Chang, who worked at Bentley China for a decade, joined Tesla in March as its general manager for China.
"Mr. Chang will help Tesla navigate its entrance into the Asian market," said analyst Andrea James of Dougherty & Company in a recent research note. "Global demand is robust."
Contact Dana Hull at 408-920-2706. Follow her at Twitter.com/danahull.
Source: http://business-news.thestreet.com/morning-sun/story/tesla-hopes-find-electric-car-demand-china-0/1
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