The article was first published in our firm's newsletter in April.
We also summarized a recent article "The Chaos of Tesla in China" posted by PingWest, an online technology media site, because it contains rich information on the culture, personnel changes, and sales channel shift of
While we are hearing whispers on Wall Street about an expectation of thousands orders for Tesla Motors in China in 2014, we are cautious about the medium to long-term uptake.
According to Alexa’s global tracking of visitors to the Tesla website (including its Chinese language website), less than 5% of the total visitors came from China today, compared with 51% from the U.S, 5.2% from Canada, 4.2% from India -- a small figure considering the huge amount of Chinese netizens. While we do NOT consider the website tracking data indicative of order book strength by real time, they provide directional color of public interest in the brand and products. Especially considering that the addressable market is likely dominated by educated, high income male consumers, we believe those seriously considering such a big ticket purchase as Model S are likely to visit the website before placing an order, since the website by far is the primary source to gather detailed information about the product.
In short, Tesla’s white-hot PR is generating a media sensation and long lines outside of the company’s only China store in Beijing, but we believe actual purchases could fall short of expectations.
How to Purchase a Tesla in China
Tesla requires all buyers to have a dedicated parking space. It will arrange the dispatch of technicians to install an individual charging station at the parking space after receipt of the deposit. The company says it has completed almost 400 home installations so far.
For a Model S , competitively priced at ~750K RMB ($120K USD, not including any bells and whistles which add up to another 450K RMB or $75K USD ) in China, customers need to first make a deposit of 15K RMB before Tesla will send staff to install the charging equipment in his or her parking lot. Once the charging facility is set up, the order is then sent to California, the location of Tesla’s current manufacturing site. It takes Tesla about 3-4 months to build the car and ship it back to China.
After being inspected in the Customs, which takes approximately another 10 days, the car will be picked up and the buyers will be notified. The car is then delivered upon the payment of the balance of 600K RMB (~$96K USD).
The first Tesla arrived at Chinese customs in Dec 2013, and the first license was issued on Feb 26, 2014, according to our research. Only two licenses to Tesla were registered in Beijing in Feb. Tesla’s deliveries in China are not made according to the sequence of orders. Rather, they depend on the progress in the development of infrastructure and service centers in the regions where the customers reside, a policy that has angered some Chinese customers.
EV Infrastructure
Tesla has promised to work with property owners to install chargers at their private parking spaces. The home charging solution includes a wall connector that provides maximum charges of 40 amps; for an extra charge of 13K RMB (~$2K USD) the car can be equipped with an on-board charger, expanding the capacity to 80 amps. However, China imposes an electric current limitation of 20 amps on residential circuits, which effectively caps the charging capacity at this limit and lengthens the charging cycle. To exceed this limitation, Tesla would need to negotiate on behalf of its customers with several parties, including the property management company, the fire department, and electric power providers.
To install superchargers in public spaces, Tesla has tapped Hanergy Solar Group to provide its first solar carports in its planned photovoltaic supercharger network in China. Tesla plans to build seven supercharger networks with a 24-hour-a-day solar power supply. The first batch of charging stations is under construction and will roll out in Beijing and Shanghai. The Beijing carport, a mobile carport designed to be assembled and transported, adopts Hanergy’s GSE flexible thin-film solar modules. The Shanghai carport will be a fixed structure, using Hanergy’s MiaSole CIGS high-efficiency modules.
Tesla is seeking partnerships with China's two major power operators, State Grid Corp of China and China Southern Power Grid, to jointly construct charging stations, starting with Beijing and Shanghai. Some would rely in (small) part on solar energy, but the smoggy environment of many Chinese cities could limit the useful input of that source. Even if placed under perfect sunshine, these chargers could draw most of the power from the grid, not from the sun power, depending on how many cars are hooked up to the chargers during a daily cycle
Why is a Tesla taxi fleet a joke in China?
We translated and shared a recent article on seekingalphal.com “Fleet Economics and the Underestimation of Chinese Tesla Demand” with Chinese auto dealers and sales managers. The reaction was unanimous: they all laughed their heads off. Here is the cost and benefit analysis. Basically the additional costs of adopting a Tesla EV as a taxi overweigh benefits by a lot.
Let’s assume that a traditional car consumes ~9 liters of gasoline per 100 km and that an EV consumes 26 Kwh of electricity per 100 km. Taking into account the price difference between gasoline and electricity, driving an EV would save .5 RMB/km ($0.08 USD/km). If a taxi has daily mileage of 450 km, the annual saving from using an EV would be 82,125 RMB ($13,133 USD; 365*450km*.5RMB/km).
The number of years that taxis can operate is set at 6 years in China, meaning the total savings sum to ~493K RMB ($78,800 USD). An average ICE taxi costs ~100K RMB, compared with TSLA’s Model S at ~750K RMB. In other words, the extra cost from switching to Tesla is significantly higher that the savings from fuel consumption.
Additionally, most taxis are currently powered by natural gas (4.8 RMB/L), a more affordable alternative to gasoline at 7.6 RMB/L. This further narrows the savings from running an EV. Moreover, driving 450 km a day in an EV is not realistic without a robust charging station network.
Finally, Tesla has very expensive tires that last 15,000 - 25,000 miles at most. The car is also extremely expensive to repair. Replacing a light may cost $1,200, while fixing a 3-5 mph parking dent could set one back $10,000 - $20,000 – far too expensive for Chinese taxi drivers.
Hype or Not: Too Early To Tell
While Elon Musk is frequently compared to Steven Jobs in terms of entrepreneurship and influence, luxury autos and smart phones are distinctively different consumer products. While expensive, an iPhone is an affordable luxury for an average Chinese consumer with monthly income of around ~3,000 RMB ($479), or a youngster who will stop at nothing – even selling a kidney – to acquire one. The story for Tesla is substantially different.
Recognizing Tesla’s revolutionary product and business model, we think China is a wild card. Since stocks are distinctively different from the underlying companies and products, they are often times ruined by high expectations that leave no room for any execution errors.
With thanks to Priscilla Zhu, Yuying Chen, Ana Swanson
