After about seven months of accruing back orders in the world’s largest automotive market, Tesla (NASDAQ:TSLA) is ready to start shipping its Model S sedans to Chinese buyers. CEO Elon Musk said that the company is hoping to start building the cars regionally within three to four years.
Musk, who was speaking at the Geekpark Conference in China on Monday, added that Tesla is building a “big” network of charging stations in the country, including superchargers in Beijing and Shanghai, Bloomberg quoted him as saying. “At some point in the next three or four years we’ll be establishing local manufacturing in China,” Musk said. “China is very important to the future of Tesla. We’re going to make a big investment in China in terms of charging infrastructure.”
Tesla’s Model S sells in the country for about $118,000, due to a hefty 25 percent import tax imposed by China. Musk said that producing the cars locally will help drop the costs considerably and also circumvent the tariff altogether. Musk has said that sales in China should meet the demand seen here in the U.S. as early as next year.
Analysts like Finbarr O’Neill, the president of J.D. Power & Associates, are cautiously optimistic about Tesla’s potential in China. “I think they can sell quite a few here in the market,” he told Bloomberg. “There’s a lot of talk about Tesla but, you know, their numbers are not huge. Mr. Musk has been successful in many fields. I wish him luck, but there’s a limit to every market.”
Tesla’s foray into China is being closely examined by industry peers, Bloomberg reports, since Chinese consumers have been slow to respond to electric vehicle technology. The government hasn’t exactly been superb about fostering an atmosphere conducive for EVs, and the lack of a charging station and expensive prices for electric cars has seriously hindered their growth in the region, despite China’s desperate air quality issues.
China is hoping to put 5 million alternative energy-powered vehicles on the road by 2020, and the country is well behind on that goal. Tesla opened its first storefront location in a Beijing shopping mall last year and has been taking orders for the Model S ever since.
Ultimately, Tesla is hoping that it Chinese EV subsidies will reach a point where the expensive taxes will be roughly offset. This would give Tesla a pronounced advantage over its competitors, which also cost a considerable amount more in the Chinese market.
It will be interesting to see how Tesla intends to keep up with the increase in demand, as the company maintains that it is capacity constrained, rather than demand constrained. Tesla’s plans to build the cars locally will help over the longer run (and be essential to operations once the more affordable Gen-III car is released), but the shorter term will see quite a juggling act on Tesla’s part, unless there’s a hidden ace up its sleeve.