China is the world’s largest market for electric vehicles, last year they sold approximately half of the global shipping volumes. Telsa’s newest EV, the model Model Y has failed to impress their most important market.
This could spell trouble for Telsa who in January has just broken ground on its Shanghai Gigafactory to make the Model 3 and Model Y’s more affordable for China. This EV market, like the US, loves its SUVs.
To get a sense of how the Model Y was received in China, Echo Wang over at Quartz took to Weibo, the countries largest social network to see what people were saying:
“There was barely any surprise, [the car] looks like a taller version of Model 3,” wrote Meng Gou Unignite. He noted further that the Model Y will only start delivering in the fall of 2020. This means Tesla could be too late, local start up NIO will have their five seater ES6 and the Audi E-Tron will be already available and delivered in higher volumes.
Another used an interesting Chinese metaphor that the “Model Y is here, but it’s just like the SUV version of the Model 4, which feels like a chicken rib” meaning that it’s not of much use and would be wasteful.
“Its front face looks really strange, almost like a platypus,” wrote Jin Cuodao. Jin’s comparison was not uncommon.
“I feel like the launch event is average… Model Y is said to be the combination of Model 3 and Model X, it’s tiny to look at but it has seven seats. However, I don’t think its appearance can compare with Model 3. It’s like a babysitter’s version of a sedan. I got excited for nothing,” wrote Nobodyyyyyy
Another said that Y “looks like it’s pregnant or a loaf of bread… This doesn’t pass the requirement for people who care about looks.”
The lukewarm reaction to the model is not a great sign. Already, Model Y’s facing a slew of competitors in China, where local carmakers are churning out lots of affordable EV SUVs. Tesla might have an advantage in China among luxury-loving buyers, but the confidence has been shaken with its loyal Chinese customers with major price fluctuations in pricing.
Why does China matters so much?
China is ambitious and it is aggressive, they are looking to be the world leader in Electric Vehicles, last year EV sales topped 770,000 units, which is more than half of all new energy vehicles sold globally. China’s vision of “Made in China 2025” is an industrial strategy to catch up with global leaders and become self-sufficient in 10 core technologies, one of which is new-energy vehicles.
Beijing wants domestic car makers to be selling 3 Million EVs a year making up 80% of total domestic sales. They also plan to have 10% of their sales be overseas by 2025.
Business Insider has a good video explaining the challenges that Telsa faces in China.
If you don’t feel like watching the video, the main take-a-ways are:
- Tesla is a luxury car that the average person in China can’t afford.
- The Chinese government has been giving generous subsidies to those looking to buy an EV. However, this is about to change with a new Cap and trade deal for the manufactures. So instead of the consumer getting a subsidy for buying the car, the manufacturer will get a rebate for building the car there. We will see how this impacts the buying habits of the Chinese consumer.
- Tesla will have to revamp it’s whole supply chain. They have been building their cars in the US and will have to move to parts sourced locally in China.
- SUVs are very huge in China, the model X is 170k and it’s competing with NIO which just came out at half the price.
- Tesla’s declining brand value. Musk’s legal trouble and erratic behavior with stories of cars catching on fire. A recent report from Axios the brands value in declining in the US. In China, there was significant backlash, with the price of the Model 3 being cut significantly. A car they just purchased for 65-60k that there is now a much much cheaper model that much cheaper and basically the same car.
- According to their sources, Tesla will have to put 150-200k cars on the street to be able to get a foothold in China. However, this might mean that they’ll likely have to sell cars at a loss to compete. With the plant just breaking ground in January. Tesla’s plans to sell cars by the end of the year seems ambitious. Even if they do meet a deadline of getting cars out in time, it likely won’t be in significant volumes.
It’s a tricky time for Tesla in China, the company is looking to gain ground in the world’s largest automotive market. In addition, the Chinese economy is slowing and the automotive and trade wars are hitting the auto industry hard. General Motors, Ford, Jaguar Land Rover and Volkswagen have all recently reported a slide in sales.
Autohome, a website tracks car prices and models in China, shows there are 48 electric SUVs, 16 of those are compact SUVs. BYD, China’s top-selling electric vehicle maker in 2018, offers Song, an electric SUV model equipped with a battery range of 400 kilometers (250 miles) and is priced is around $28,000.
BJEV, a state-owned manufacturer, has the EX5, which starts at an even lower price of 25,000and has a battery range slightly higher than the Song.
One female Tesla owner said she’s no longer driving her Tesla bought in December after the price drop: “It used to be a cool thing driving this around… [the price cuts] struck hard at the identity of the brand.”
By 2020, Tesla will face a completely different situation as the majority of car brands will roll out new electric vehicle products. How the brand recovers from it’s recent actions and their ability to deliver will be key to their success in China.