Tesla Just Created a Miracle in China?
On January 7, 2020, the first day of CES 2020 heavily dominated by auto companies, Elon Musk appeared in Shanghai for the “Tesla China-Made Model 3 Delivery Ceremony” and “Model Y Opening Ceremony”. His spontaneous awkward (some say cute) dance moves on stage soon were made into a WeChat emoji for excitement.
Musk has many reasons to cheer compared to a year ago and Tesla’s progress on the China market is a major one. Let’s quickly go through the list of “miracles” he has created so far:
1. Wholly foreign-owned automaker
For years, foreign automakers have had to form joint venture with local companies to do business in China. Tesla was the first to benefit from a new policy on wholly foreign-owned enterprises in May 2018.
2. Government approved NEV manufacturer
A certificate for New Energy Vehicles (NEVs) Production has been a high threshold for players like Byton and Nio. Byton ended up acquiring FAW Huali to gain the certificate, which came with a debt of over RMB 8 million that Byton struggled to pay in 2019. Nio and others have been partnering with traditional OEMs on assembly lines as a solution. Tesla was given the green light, officially listed as approved NEV manufacturers by China’s Ministry of Industry and Information Technology on November 13, 2019.
3. Tax and subsidy benefits
Tesla is benefiting from the purchase tax exempt policy as well as subsidies for NEVs like local companies. Meanwhile, China-made Tesla is offering competitive pricing with no import duty and lower production cost compared to the US factory. The imported Standard Range Plus Model 3 is priced at RMB 355,800 while the China-made Model 3 has just been adjusted to 323,000 and the final sales price is 299,050 after subsidy. As Tesla is building up a fully localized supply chain by end of 2020, the price would have room to decrease even more.
4. China speed plus
In October 2018, Tesla acquired an 86-hectare land from the government in Lingang of Shanghai as the only bidder meeting all requirements. In January 2019, construction officially began for the so-called Shanghai Gigafactory and in just 8 months it was ready for trial production. By December 30, the very first 15 Model 3s were ready for buyers. There was a media comment that the speed was fast “even by Chinese standards”.
5. Local funding
In March 2019, Tesla got a loan of RMB 35 million from multiple state-owned banks of China. In October, it got another 50 million. In December, another 100 million was added, all at low interest rate and flexible terms revealed by multiple media sources. When some local companies had been struggling with capital throughout 2019, Tesla seemed quite smooth securing local funding.
There is still a long way to go for Tesla China to meet the expected production capability and growth plan, to receive customer feedbacks on China-made models, and to prove true value on P&L sheets. Regardless, it is a miracle with China being considered difficult for foreign enterprise with huge potential but regulatory and cultural barriers.
