US-based Tesla Motors Inc. (TSLA, Financial), one of the largest commercial manufacturers and retailers of electric vehicles, has recently been eyeing the Asian market, lured by its size and population. However, there are challenges galore for the automaker to combat: dwindling sale figure in the Chinese market, stress on hydrogen-based vehicle in Japanese market and the underdeveloped state of Indian automobile market, to name a few.
China
For Tesla, China is undoubtedly the most robust market, given its size and population, much ahead of the USA. According to official statistics, a total of 18 million passenger cars and 4 million commercial cars were sold in China in 2014, while US posted a sale of roughly 16.5 million. Sensing an opportunity in the robust Chinese market, other players such as BMW AG (BAMXY, Financial), Daimler AG (DDAIF, Financial) and Nissan Motor Co. (NSANY, Financial) have jumped on the bandwagon to bite into the profit. So, even before the market is ready, competition has already begun to crowd the field. However, this is least of Tesla’s problem.
At a conference in Detroit, Tesla’s CEO, Elon Musk, expressed disappointment on China’s sales figure for their product, owing much to the innate resistance to the idea of going electric. Unlike US, where people live in single family homes and consequently have a family garage and space for home chargers, in China people live in multifamily housings. According to a 2007 estimates by consulting firm Chreod Ltd, low-rise multifamily housing makes up 74% of all urban housing in China. This complicates things for Tesla, as setting up a home charger is essential for keeping their vehicle running.
Another article in Fortune Magazine points to the lucrative price proposition of the car in China, despite the levy of 25 percent import fee. The price for Model S translates to $118,000 in China versus $71,000 in the U.S., and yet the car is not considered very expensive by Chinese standards. At the same time, skeptics have pointed to the fact that Tesla’s Model S is not ‘a show-off piece’, not being muscular enough, and being perceived as economical for the Chinese market.
However, all is not lost. A recent article in Wall Street Journal points to the case of government regulations moving in favor of electric car makers in China. The article states that a "recent regulations in Beijing now require that about 20% of parking lots attached to new buildings be capable of housing charging units. A recent policy paper from China's State Council was dedicated to infrastructure issues." Also, Dana Hull of Bloomberg reports that Tesla’s target is long-term, and one need not completely write off the company based on short-term aberrations, acceding to the fact that the company might become profitable in China only after 2020 when annual sales reach 500,000.
Japan
Strong competition, government protection to the domestic car-makers and stress on the hydrogen fuel based vehicles are some of the major roadblocks which Tesla will have to dodge through in the Japanese market. According to reports, the government is subsidizing the hydrogen fuel project in Japan, shaving off $17,000 per car and big time investing in hydrogen-powered vehicles. Indeed, Japan would be anything but a cakewalk for Tesla.
India
India, being the third largest automobile market in Asia, after Japan and China, is a natural destination for Tesla. According to a recent article in Economic Times, the company plans to set up a local assembly plant in India to bypass the 100% import duty levied by the Government of India.
Electric cars have so far been a negligible part of Indian automobile market, with Indian consumers showing reluctance to pay a premium to go electric. Bangalore-based Reva, which has been around for over a decade has met with little success. Lack of charging infrastructure, overburdened national grid, limited mobility and comparatively high prices prevent electric cars from competing with petrol and diesel-run cars.
The year 2013, however, started on a green note for India with the launch of National Electric Mobility Mission Plan 2020 (NEMMP), under which the government plans to spend at least $2.1 billion to $2.3 billion by 2020 to promote electric and hybrid vehicle on Indian roads. The document claims that the subsidies would reduce carbon dioxide emission up to 1.5 percent, and add six to seven million electric vehicles to the roads by 2020. The policy is yet to be approved and implemented.
Also, a recent TERI report says that the growth in EV market needs to be fuelled with organic consumer demand rather than being incentivized by the government, which is currently the case. “The Indian consumer is price, fuel economy and style conscious and will therefore appreciate the long term savings of EV versus Internal Combustion Engine. In which case, growth of the EV value chain must be fuelled by organic consumer demand, and not pushed by unsustainable government subsidies for consumers, to drive purchases,” says the report.
Only stoking the headwinds further, Tesla vehicles are very expensive for the generic consumers in India. And hence the company plans on introducing a cheaper model (Model 3) by 2017. Tesla has also been in touch with the Indian government and is trying to push for a separate import category for “alternative energy vehicles.”
Tesla's Asian dreams
The U.S. auto giant is trying hard to make a mark in the Asian market and capitalize on the fastest growing economies. But an important factor that would play a roadblock in Tesla’s Asian quest is the price factor. It would not be an economic solution to cater to the price conscious teaming millions of the Asian continent through imports especially when the costs of imports are much higher than local solutions. In order to gain ground here they will have to decentralize their production facility and set up plants in Asia to produce the cars indigenously and sport a competitive price tag in order to lure more and more customers. Till the time the automaker makes such a move it would be hard to predict much of a meaningful bottom line yield added to the automaker’s coffers from its Asian initiatives.
