Tesla Motors Inc boss Elon Musk has been making quite a few promises as his firm’s stock crashed in recent days, but one stands out above all others. Mr. Musk said, in a recent speech, that his team will have a factory up and running in China in two years. That could be a major boost to sales in the country, and it might be enough to shift part of Wall Street’s fugue.
Right now Tesla Motors has to import cars into China, and the firm has to pay heavy tariffs as a result. That drives up the price of the Model S in the country.
Mr. Musk made the comments in a speech at Tsinghua University in Beijing. Mr. Musk specifically said that the firm would set up plants in the country in the next two years, and that those plants will be used to build the firm’s less expensive Model 3. The high price was one of the factors blamed for the less than rosy sales situation in the country earlier this year, but dropping that price may involve Tesla Motors taking on very high costs.
Tesla Motors will have to change itself, or change China
Western car makers have only found one way to get around the high tariffs charged on their cars in China. They have to build units in the country, but even that isn’t so simple. Car makers like BMW have had to partner with a local firm in order to avoid high taxes. Tesla Motors will likely find that to be the path of least resistance.
The firm’s leadership, however, doesn’t appear to be willing to work with third parties in the US to sell its cars. Having another firm help to build its cars in China seems like a major leap and one that could be against Tesla Motors’ interests, not just in terms of risk but also in terms of principles.
Tesla Motors has proved fairly incapable of having laws changed in the United States. The firm has lost a number of battles over whether it should be allowed to sell cars outside a dealer network. That’s a country where the firm has both elite and popular support, as well as connections and infrastructure.
If Tesla Motors decides it doesn’t want to take on a local partner inside China, the fight will be very interesting. It is clear, however, that the firm isn’t likely to succeed where the likes of BMW and Mercedes have failed.
China is a problem for Tesla Motors
China may be the largest car market on the planet, but it’s not so simple a prospect for Elon Musk and Tesla Motors . Being forced to partner with a local firm could open up all sorts of risks for the firm, but refusing to do likely means being punished out of the market.
That’s the kind of trade off that Tesla Motors, and those with money behind the firm, will have to get used to in the year ahead. China could really help the firm reach sales of 500,000 units per year, but the costs are going to be high, no matter how the firm approaches the problem.