Eager to minimize import costs, Tesla has made impressive progress laying down roots in China. The company secured a long-term lease on a 210-acre site near Shanghai in October of 2018. Ground was broken at the start of January, with the $5 billion facility estimated to begin producing cars as early as this November. While all of this effort was aimed at expanding the brand in Asia while minimizing costs, it’s not translating into a cheaper Model 3 for the Asian market.
Tesla, being Tesla, has decided to launch the Model 3 with a starting MSRP of $50,000. According to Bloomberg, that’s only 3 percent less expensive than the versions it had to ship across the ocean. Rather than attempting to build more budget-conscious variants, the automaker decided to offer all vehicles sold in China with Autopilot and additional standard content.
From Bloomberg:
The first Tesla vehicles to be produced outside the U.S. are part of Chief Executive Officer Elon Musk’s efforts to expand in Asia and take on local electric-vehicle upstarts. The pricing suggests Musk is trying to maintain Tesla’s premium image in the world’s largest auto market, leaving local competitors to compete for buyers of cheaper EVs.
“It might affect the choices of some potential customers, but not much,” said Yale Zhang, the founder and CEO of [the Shanghai based] consultancy AutoForesight. “The product’s target group is not that price-sensitive compared with those choosing much cheaper ones.”
While the Model 3 can be sourced in America below $40k, those exported to China typically cost $51,500. There’s no way there aren’t a few thousand Chinese shoppers that will be disappointed to learn their home-grown variants will be priced roughly the same — even if they come with a bit more content. But this is Tesla, a company that likes to lead with its more-extravagant products. Asia probably should have seen this coming.
Will the strategy play for the first foreign-controlled automotive assembly plant in China? Maybe. Leaning upon pricier models seems to have worked for Tesla in the past, but the company faces a lot more electrified competition in the PRC. Government influence has created countless EV brands in China and encouraged established carmakers to embrace electrification more than they have in the West.
Bloomberg noted that local rivals will be able to undercut Tesla’s pricing by significant margins, with even the higher-end firms remaining competitive. For example, NIO sells the all-electric ES6 crossover for around $47,800 in China. It’s quite a big bigger than the Model 3 while offering similar range and its own unique traits (like a cute digital assistant). That could force Tesla to go all in on its premium image, hoping that China responds favorably.
Tesla claims Chinese-made variants of the Model 3 will go on sale in the first quarter of 2020 — all of them with Autopilot.
[Image: B.Zhou/Shutterstock]
“The product’s target group is not that price-sensitive compared with those choosing much cheaper ones.”
You doubt this viewpoint in this article, but usually TTAC likes to point out how Tesla buyers are rich enviro-snobs. So now we’re supposed to believe Chinese Tesla buyers are bargain hunters?
“While the Model 3 can be sourced in America below $40k, those exported to China typically cost $51,500.”
TTAC often points out that the sub-$40k Model 3 is a mythical unicorn, and its ATP is really in the mid-50s. So the vehicles sold in China will be essentially the same as the US cars.
“NIO sells the all-electric ES6 crossover for around $47,800 in China. It’s quite a big bigger than the Model 3 while offering similar range and its own unique traits (like a cute digital assistant).”
Nice straw man. NIO is dying because it doesn’t sell enough of these things.
https://www.thetruthaboutcars.com/2019/08/why-is-nio-struggling/
“Bloomberg noted that local rivals will be able to undercut Tesla’s pricing by significant margins, with even the higher-end firms remaining competitive.”
Most EVs available in the US undercut Tesla’s price, but Tesla owns the market. Facts are so inconvenient. Tesla isn’t building its Chinese factory without knowing it will sell a lot of cars there; demand is high.
How does the typical Chinese citizen view Tesla and Musk?
Does he have the same kind of fanboys and girls over there as we do in the US?
Gasoline is 70 cents per liter in China so e-drive is not the big operating savings like Europe where it’s 5 to 6 bucks a gallon.
General comment: The Grand Tour Season 3 Episode 6 (“Chinese Food for Thought”) [Feb. 2019] has some eye-opening facts about the automotive market in China.
How is it that the Tesla corporation can open a factory in China so quickly and easily when there is a trade war going on with the U.S. and riots in Hong Kong? Why is Tesla not affected by this? Please someone enlighten me.
The Chinese economy has to grow at ~ 6% a year just to stand still. They will do and spend whatever it takes to make that happen and absorb the influx of young people looking for jobs in the cities. Tesla took advantage of their economic dilemma and likely got a sweet deal to finance the factories. Every nut, bolt, panel and circuit board trace in the design will be copied by the Chinese and used against Tesla in the future. As the saying goes, desperate people do desperate things.
Because the Chinese have terrible air pollution problems, and are making a strategic move toward electric cars in their economy.
Your answer is that Tesla’s interests are aligned with that of the interests of the Chinese government, as China’s leaders perceive them. Tesla has received all kinds of preferential treatment, including a waiver on the requirement to start a joint venture (instead of owning the factory and business directly as Tesla does).
Plus, if Tesla leaves, the factory and most of the people who work in it will still be in China.
The same stuff works for businesses in the United States, even though our culture and style of governance is very different. If everyone across our vaious branches of government and in other businesses (banks / VCs) thinks your business is a good idea, the impediments will be greatly reduced. And so it is with Tesla in China.
Thanks for your responses, TimK and Luke42.
Yup.
With the addendum that China is a one party state, so they don’t tend to have the same level of discord and argument for argument sake that we see here in the US. Not that they don’t have various factions and divisions within the party, but you’ll never see stuff like the Tea Party refusing to sign any Democratic sponsored bill, no matter what was actually in it.
Higher rates of organ donor participation too, I hear?
I am surprised that TTAC has not written about Tesla 3rd quarter results. Stock is on fire since then.
Regarding the price, there may be incentives to the people for buying electric cars made in China. Also a BMW 3 series costs the same
Addm that’s because writing positive things about Tesla goes against TTAC’s modus operandi.
Yeah, change scares a lot of people.
Even if that change reflects the American dream in so many ways.
You guys have to remember how big China really is.
The richest 20% of China’s population has more people in it than the entire United States.
A lot of their people live in poverty, and a lot of our people live in poverty. If you ignore the poorest 80% of China, they’re still bigger than we are.
Selling luxury stuff to rich Chinese is a fine business to be in. And Telsa can always introduce low cost cars later, if they need to.
The rich Chinese don’t care of the price. The more expensive and rare, the better. It is the 3rd world mentality. They don’t care if it works right or if it is practical. The biggest attribute has to be “rarity”. All the luxury brands of the world know this and their biggest sales come from China for the past 15 years.
iPhones have been (still are?) status gifts in China.
They’re not exactly rare, just too expensive for the common people.
Exclusivity sells to the subset of rich people who care about care about that sort of thing. My point is that China’s rich people make up a huge market, even if China many more poor rural farmers than we do.
Agree Luke42. Exclusivity is a huge thing in China..and some other countries where there’s a huge gap between haves and have nots. Rich Chinese have concierge buyers who come to USA to North Carolina and order furniture for them. Afterwards, they arrange shipping and send it to China.
“The richest 20% of China’s population has more people in it than the entire United States.”
That’s pretty rich, considering their total population isn’t five times ours.
Don’t make at premium cars cost 3 times as much over there compared to the US? Wouldn’t that make the Tesla a bargain?
The picture: It looks like they found the paint defect(s). [I see two fingers pointed.]