Tesla in China: Elon Musk’s Litmus Test

May 25, 2018 – 05:41 pm

Tesla from iStockphoto ResizedWill the ‘fair price’ strategy help electric car manufacturer Tesla in China?

Elon Musk, the maverick founder and CEO of the Silicon Valley-headquartered electric car maker Tesla Motors, has had his eyes on China for a while now. Last year, he called the China market a “wild card” in the company’s future.

In January this year, Musk finally decided to put that wild card to test. A week before Chinese New Year, Tesla published a blog titled ‘A Fair Price’, finally announcing the launch of its Model S online design studio in China. The studio will allow customers to design, save and share their Model S, before the actual cars debut in China.

Hidden in the announcement was also a trump card: the company said that the Model S would retail at RMB 734, 000. At this price point, Tesla is retailing the Model S at pretty much the same price it charges its US customers, plus taxes, customs duties and transportation costs. This, the company claimed, is a departure from “standard industry practice”, wherein foreign companies make double the profit per car when they sell in China.

Analysts were surprised. In an interview with Bloomberg, Musk said, “They’re basically calling us huge idiots for not ripping off customers in China. I don’t think ripping off customers is a good long-term strategy.”

The blog set Chinese social media abuzz. Of the 80, 000 votes received in a reader survey on QQ.com, a popular microblogging site, 90% supported Tesla’s move. According to a Reuters report, a day after the blog was published, social media posts mentioning the Chinese name for “Tesla” jumped over seven-fold to 3, 502, most in favor of its pricing strategy.

Tesla is betting big on China. The auto maker plans to open 10-12 stores in China this year, including its flagship store in Beijing. Tesla is hoping that China would account for one-third of its growth this year, with Model S sales coming at par with that of US next year itself. As Musk said in the Bloomberg interview, “It’s not my firm prediction—it’s more like a low-fidelity guess.”

Low-fidelity guess or not, it does seem like a formidable target considering that Tesla is hoping to sell about 48, 000 cars globally this year, with the US accounting for 40% of it.

Source: knowledge.ckgsb.edu.cn

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