The Chinese government has been strict in implementing measures to curb air pollution, and has been advocating the sale of green vehicles which comply with zero emission norms. Tesla (TSLA, Financial) is the automobile company which has been leading in the electric vehicle segment
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Now, Tesla wants to enhance its foundation in China, and the management urges to take brisk steps to achieve the set goal. However, Tesla will have to encounter certain hindrances in the Chinese soil where the government policies are stricter for foreign companies. Let’s have a closer look at Tesla’s playbook to understand whether it would be able to gain firmer ground in China.
Chinese government’s regulatory policies
The Chinese government wants to put around 5 million electric or plug-in hybrid vehicles on its roads by 2020, but to date reports have confirmed that there are a mere 70,000 electric vehicles plying on China’s roads. In order to promote EV sales, the government has set a target that 30% of government vehicles purchased by 2016 should be EVs. To reach the target set for 2020, the Chinese government is ready to fund nearly $16 billion to build electric charging stations. To further promote EVs among Chinese car buyers, the government is looking to impose a new tax on gasoline engines and has renewed the private-buyer subsidies for electric-powered vehicles for another three years.
Tesla foresees ocean of opportunities
All these efforts of the Chinese government spell good news for Tesla, which currently has 200 charging points and 13 super charger stations across China. Recently, the company has partnered with China Unicom to build charging posts in 120 cities, and super charging outlets in 20 cities across China. As per the terms of the deal, China Unicom would provide land and Tesla will provide the basic equipment necessary for charging stations.
However, as China has 170 cities with population exceeding 1 million, if Tesla wants to increase the number of charging stations, it will have to shell out money in the form of huge investment for building its charging network across the country.
Local partnership essential for investment
Global auto players such as Nissan Motor Company (NSANY, Financial) and Daimler AG (DDAIY, Financial) have invested in China’s EV segment along with their local partners as Chinese regulations require foreign companies to invest locally to grow in the nation. News sources have confirmed that Nissan and its local partner Dongfeng Motor Company will launch the Venucia e3 brand this month in China. And it has been estimated that Dongfeng wants to capture 20% of China’s EV market through this joint venture.
Absence of a local partnership in China is a major challenge for Tesla, which imports cars manufactured from a production plant in Fremont, California. If Tesla wants to win the major pie in terms of market share in China, it needs to change its strategy and start looking up for a local partner who could aid in setting up a Chinese plant for local production. In fact, as per Chinese government norms, foreign companies are forbidden from setting up manufacturing units in the nation until there is a joint venture with a local automaker with ownership cap standing at 50%.
To add to Tesla’s woes, its electric vehicle, Model S, has a premium sticker price in China when compared to other rivals’ EVs selling in the market. Hence, finding a local partner to compete with local and global players in the Chinese automotive space is like a necessity for the company.
To conclude
Tesla does hold innumerable opportunities in China where the government is continuously advocating the EV segment for improving sales in this automotive segment. China’s government also provides subsidies to EV buyers so that makes promotional activities for green vehicles easier in the nation. But Tesla does face some challenges which it needs to take care of in order to tap the growth opportunities in China.
