China cools with musk: “two cars at the price of one Tesla”

Tesla is being crushed in China. This is the most important market outside the US and has dominated it for many years.

When 32-year-old Li Jie decided to buy an electric car in October, Tesla was one of her biggest options. However, after testing several Chinese cars, she went along with a sports sedan from Xiaomi, a consumer gadget maker well known for its smartphones, kettles and robotic vacuum cleaners.

“Xiaomi is more fashionable,” Li said in Beijing last week. “Tesla, for me, that's a bit normal. You can see the Tesla Model Y anywhere.”

That's not personal, buyer said. Tesla is still considered a top brand, with Tesla CEO Elon Musk being praised in China. Beijing launched the red carpet when it smashed the ground at its first overseas factory in Shanghai. Musk is believed to be igniting China's local electric vehicle industry.

But now the market is a blood bath in competition with Chinese rivals. Chinese drivers who once flocked to Tesla are increasingly changing to local brands offering more efficient cars with better technology, sometimes more efficient cars at half the price.

Tesla's biggest rival, The Electric Giant BYD, sold 481,318 cars in the first two months of the year. Tesla sold 60,480 vehicles in the first two months of the year, down 14% from last year.

Tesla sales in China have skyrocketed as automakers face criticism of Musk's role as Trump's aide responsible for cutting federal spending. Tesla has lost about a quarter of its value in the past month as investors avoided the stock.

The threat that BYD will bring about Tesla in China has been built over the years. BYD has sold over 1 million cars each year for the past three years. The popularity of BYD is driven in part by the fact that its car is inexpensive. It helped that local governments could pilot their businesses in the direction of the company.

But the property crisis and the widespread slowdown of the consumer economy have hit households, seriously undermining the desire of people to shop, making it difficult for all automakers. Things are getting so bad that the government began offering subsidies a year ago for consumers to trade old cars. The government increased its incentives last week. Domestic companies benefit from subsidies, and so are Tesla.

Even amidst the slowdown, there is still a luxury car market for those who can afford them. Li, who had a budget of around $41,000, said it was an affordable luxury option compared to the $41,305 Xiaomi Su7 Max purchased by Tesla. Also, Tesla offers a five-year, zero-selfish loan, while Xiaomi does not provide funding.

Also, many Chinese drivers are planning to pay more for advanced technologies like autonomous driving, a region where Tesla has lagged behind, as the government delayed the introduction of similar or better technologies.

But Tesla faces another problem: demand. Sales of all cars in China are slowing.

The policy aimed at replacing gas gazlers with electric vehicles was helpful. In cities like Shanghai and Beijing, car owners can trade old cars for new cars and get a subsidy of nearly $2,100. At some Tesla dealers, employees created walls with pictures of cars that buyers traded. There are Porsches to Mercedes and even occasionally Chinese cars.

However, replacing an old car with a new one is usually only one time.

For many dealers, selling cars is becoming more difficult. “It was fine two years ago, but now the market is saturated,” said Chen Jiaming, a salesperson at FAW-Volkswagen dealer in Shanghai, which is working with the state-run FAW group.

Chen works from the New Energy Vehicle Block, located underground in the mall near Zhongshan Park in Shanghai, where the electric vehicle was converted from its food court three years ago when it first took off in China.

A dozen dealers in the basement of the mall were already left, with the interior lights going out on a recent weekday. A row of claw plates illuminated another empty space. To prevent FAW-VW dealers from closing, the mall gave free rent for seven months, Chen said.

“I think Tesla's competitiveness in China will last for just two or three years at most,” said Chen, who owns BYD. Tesla's driving skills are no longer cutting edge compared to their local rivals, he added.

After lobbying for many years to the government, Tesla was ultimately allowed to provide Chinese drivers with a version of their autopilot technology last month. This feature is a step below the fully automated driving capabilities available to US Tesla drivers. Drivers who want to access the software updates they require in China will need to pay an additional $8,800.

Young buyers prefer Chinese brands, said Xia Lifang, an employee who works at a dealership near China's electric car maker Arcfox. Tesla and BYD continue to be China's most trusted brands, she said, but people born in the 1990s and 2000s are open to trying new brands.

“Our car looks better than a Tesla,” Xia said with a smile.

She added: “You can buy two cars at the price of one Tesla.”

You contributed to your research.