Is There A Smoother Road To Success For Tesla In China?

Things weren’t looking good for Tesla in China in early 2015. The luxury automaker faced tax breaks that favor domestic manufacturers, complex local license-plate laws and an army of sophisticated domestic copycats.

Such hurdles are to be expected when any U.S. tech startup expands into China, but they seemed to hit Elon Musk’s Silicon Valley darling particularly hard. It sold only 3,500 cars in China in 2014, and cut an estimated 30 percent of its Chinese work force this past March.

But things seem to have turned around since then. In October, Musk announced plans to open the first Tesla manufacturing facility on Chinese soil, a move that could slash prices for the Model S by more than one-third. It’s also searching out Chinese manufacturing partners and seeking to streamline Beijing’s complex license-plate lottery for buyers of its cars.

All this shows Tesla might finally be ironing out the some of the problems that caused its bumpy ride in China, causing some commentators to claim that 2016 could be a “banner year” for Tesla’s efforts there.

That’s all well and good. But for an electric car company, China isn’t a side interest — it’s the main show. With almost 20 million cars sold each year, it’s currently the world’s biggest auto market. And its government has pledged to put five million electric cars on its roads by 2020.

To meet its goal of becoming the No. 1 electric car company in the world, Tesla doesn’t just need to get competitive with domestic electric-car manufacturers like BYD, who outsell it regularly on their home turf. It needs to beat them handily.

The question is: Is Tesla up to the task?

Charging Challenges

Even if it might be readily apparent that the American model of electric car functionality won’t quite translate seamlessly to the Chinese market, underlying problems are more nuanced and varied.

The first roadblock? A scarcity of charging stations. Even if this is really just a perception problem, and not a reality, as Musk often claims, it’s a perception problem that needs to be addressed quickly.

Establishing stations in big cities, where drivers usually don’t have private garages, is already difficult. But for Tesla to succeed, they’ll need to establish a network of rural charging stations too. The Chinese like to take their cars on long road trips; the worry of running out of charge is a severe limitation (Tesla‘s Model S has an estimated range of up to 300 miles).

Tesla’s development of a graphene battery, which could run without charge for 500 miles, would be a perfect solution to the charging-station shortage. That technology, however, remains in development.

For an electric car company, China isn’t a side interest — it’s the main show.

Then there’s the dispute over who will fund the supporting infrastructure for Tesla’s cars. Even if Tesla has promised to build a loose network of charging stations, it is hoping that the government will underwrite some of the expenses, a goal that has not yet seen fruition.

This is largely because, although the Chinese government has promised investment for charging stations in the ballpark of $16 billion, related government subsidies in this market were crafted only for lower-end electric car models, not the luxury Model S that Tesla currently sells.

There’s no word yet on whether the more affordable Model 3 will qualify when it comes out in 2017, but it might — especially if it ends up being manufactured on Chinese soil. But in the short term at least, Tesla will be on its own.

An Innovative Advantage

With the charging-station issue still unresolved, Tesla’s domination of the electric-car market in China remains far from assured. It does have one ace up its sleeve, however: a reputation for technological innovation and excellence that could serve it well in the race for a more affordable, yet reliable, electric car. Even if graphene batteries don’t turn out to be the silver bullet some hope, other equally intriguing projects are already rolling out.

This summer, Tesla put out a new battery pack with anodes made partially of silicon — an innovation that increased pack energy by 5 percent and travel range by about 15 km. A few more important, if incremental, advances like this, paired with cost decreases, could help Tesla finally corner the market. But only time will really tell.

Research for this article was contributed by members of the Whale Path research community, as well as Poornima Apte of Hippo Reads.