Tesla’s Bright Outlook for Expansion in China

Tesla Motors Inc. has high hopes for its expansion efforts in China. The company founded in 2003 designs, develops, manufactures, and sells electric vehicles and advanced electric vehicle powertrain components. They currently have several different models including the Tesla Roadster which is an electric sports car, the Tesla Model S, which is slightly less expensive and offers a driving range up to 287 miles, and auto pilot, and the Model X which is a full size crossover which finally started being delivered in September of 2015 after several delays. They also plan to release a less expensive Model 3 in 2017.

Poised for Success in China

There are several reasons why the CEO Elon Musk believes the continued expansion into China will be a tremendous success. The first and most obvious is that all Tesla cars are zero emissions which is a characteristic that many people believe will be the future of the automotive industry. The production of Electric and Hybrid cars in China has been growing and is expected to continue to grow over the next couple of years.

The second is that China has been trying to reduce their carbon emissions. According to a Business Finance News article, the government has been providing financial incentives to electric vehicle (EV) manufacturers and giving license plates free of cost to buyers in an effort to boost green car sales. China isn’t the only government that wants to promote electric cars but they have expressed the strongest desire. According to research done by WirtschaftsWoche, the Chinese government wants approximately 11.9 million electric cars by 2020 which is significantly more than any other country in the world including the U.S. which is the next country on the list which wants 3 million electric cars.

The third reason is China has the world’s largest auto market with almost 20 million cars sold per year so if Tesla want to become the number 1 electric car company in the world they need to focus a tremendous amount of effort on China and will have to overcome some serious obstacles. The largest obstacle is the lack of charging stations in China. In an effort to overcome this hurdle Tesla plans to build a network of charging stations in China with the hope that the government will help pay for some of it but the government subsidies will only assist lower end electric vehicles and the Model S does not qualify. They do however expect the new Model 3 to qualify.

Summary

Because of the world’s concern for the environment, China’s aggressive approach to lowering emissions, and China being the largest auto market in the world, Tesla’s continued expansion into China is sure to be successful. With the release of the more affordable new Model 3 (about half the price of the Model S) which is expected to be released in 2017 and their plans to set up local production in China in October of this year, the future is looking very promising for Tesla. Setting up local production in China is expected to cut prices of the Model S by more than one-third. In a recent Forbes article, Locky Law the Tesla owner representative for Charged Hong Kong said, “When the Model 3 comes, I would say about 50 to 70 percent of new car sales in Hong Kong would be EVs, and almost all of them being Tesla’s.”  Even though the Chinese government plans to phase out its financial subsidies by 2021 Tesla expects to be stable enough in China to continue to succeed at that time and further into the future.

Lindolfo Pedraza

MBA Candidate 2016