Tesla Motors Inc (NASDAQ:TSLA) Trouble Grows as China EV Sales Soar

Elon Musk Tesla Motors Inc (TSLA) and SolarCity Corp (SCTY)

Tesla Motors Inc has real problems in China. Some, like the ineffective sales team Elon Musk fired earlier in 2015, were entirely its own fault. Others, like the taxes that massively boost the price charged for the car in the country, are brought on by the oddities of China’s legal landscape. EV Sales in the country are booming right now, but that might hurt Tesla Motors more than it helps.

Elon Musk Tesla Motors Inc earnings

Tesla Motors once promised that China’s demand for EVs would propel it to a very bright future. There’s no disaster in China, despite reports that emerged early in 2015, but the country is not going to be the EV fortress that Mr. Musk once thought.

China wants to dominate the electric car

The Tesla Motors CEO claims he was mislead by Chinese tricksters. It’s clear that his firm made misstep after misstep in the country. With no plan to really approach the market in China, it’s likely that Shanghai and Guangzhou are less likely to fuel Tesla Motors sales, and more likely to give birth to its competition.

On Thursday the China Association of Automobile Manufacturers said that EV sales for the year-to-date jumped 270 percent to 108,654 cars. Very few of those were the Tesla Motors Model S. Chinese car-makers, including Buffett-backed BYD, are far ahead of the US firm, and the gap is not closing.

Tesla Motors put a positive spin on the numbers. Gary Tao, speaking on the firm’s behalf, said “Gradually people can be more knowledgeable about these EV cars and better accept EV cars, then the whole market could be ready for the mass market.” That doesn’t begin to approach the problems Tesla Motors has had in China, and the problems it’s going to have in future.

Tesla Motors makes its own path

Tesla Motors CEO Elon Musk is a master story teller. His words move the firm’s stock more than anything else. He’s been known to change the mechanics of his plan for Tesla Motors while maintaining the same forecast result. Tesla Motors will sell 500K cars by 2020, with or without China.

Judging by his past pronouncements the number remains the same no matter what’s added or taken away. Veronica Wu, the Tesla Motors China chief who resigned in December 2014, said that 30-35 percent of sales growth would come from the country.

After stories broke about very weak sales in China, Tesla Motors changed its tune. “People don’t really get that. It’s not like there were all of these extra cars we could have produced. And if only we had a bunch more customers in China we could have sold those cars.”

Demand in China is weak. The state is pushing firms to make more EVs, and helping its citizens to buy them. For Tesla Motors, that means a rise in competition rather than a massive rise in sales. For China $35,000 is nowhere near a mass market car, it’s a high-priced vehicle.

The country, with the support of the state, will produce more than one big EV maker in the years to come. That may not hurt Tesla Motors, after all Elon Musk reckons demand for the Model S is way above supply, but it’s not going to help.

It is a major risk as time wears on. There’s a reason the US imposed large tariffs on solar panels from China. Their low price made them popular, even if quality wasn’t quite up to scratch. The same could happen with EVs, but forecasts like that, if made strongly, are almost bound to be proved false.

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