Elon Musk: Tesla Was “Misled” In China

APR 1 2015 BY MARK KANE 42

Tesla's Asia Sales Were A Noticeable Weak Spot For The Company In 2014 - The Trend Continues IN 2015

Tesla Model S in China

Tesla Motors is struggling with sales of its Model S in China as targets were missed miserably and a carousel of executives started to spin.

Elon Musk stated that company was “misled” by Chinese speculators in regards to Model S demand.

As it turns out, a lot of orders for Model S were placed by resellers, who cancelled them when the cars arrived. Then, Tesla was stuck with all those cars in a parking lot.

“Tesla had been “misled” by Chinese speculators into believing that demand for their vehicles was “extremely high”, leading to an excess of inventory, Musk said during a visit to China, where he attended the Boao Forum in Hainan province.

Many orders were not placed by genuine buyers, but resellers who cancelled when the cars arrived, the official news agency Xinhua reported, quoting Musk.

“China is the only place on earth where we have excess inventory. We are essentially selling cars that speculators ordered but we were unable to deliver,” he said.”

With sales lower than expected – 469 in January and 260 in February plus maybe 600 in March – it will take some time to clear inventory.

“It was estimated that around 1,600 Tesla vehicles were imported to China but not properly licensed due to speculators’ whipped-up demand.”

According to the article, Tesla has seen a steady increase in sales and believes that in the long-term, there will be success in China.

Tesla’s charging network is growing there, Chinese customers are getting mobile adapters to charge anywhere and improvements on built-in maps and the navigation system is coming.

Elon Musk said:

“We have a strong long-term commitment to China, and we (in)tend to establish both local production and local engineering in China.”

Source: South China Morning Post

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42 Comments on "Elon Musk: Tesla Was “Misled” In China"

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Just be thankful fake Tesla stores haven’t popped up yet.

well, the fake teslas look like not much competition for the real car.

No deposit on those orders?

Wonder if they took deposits on the large number of them and then some speculators walked away from order committals.

I don’t think I would want to ship cars to China on a first-round of orders without at least 50% payment. Seems strange to have 2000+ cars in the inventory after last year (which is the number bandied about regarding inventory there). Then they have had to discount the old stock to sell them. Some say 20% discounts.

Tesla’s deposit strategy has changed since this debacle. I am pretty sure they only did $5k down (like EU) in the beginning. Now there is another large payment after production, before it gets on the boat.

I am sure Tesla will take a hit on their mistake, but tons of P85D orders might soften the blow for now.

Yes, they did take deposits on the cars and Tesla did keep the deposits. As they should.

It’s what is known as laissez-faire capitalism.

Adam Smith would be proud.

Tesla wanted to sell between 4k and 8k Model S in China in 2014.

It sold ~4k. That is not a huge miss.

Some speculators took delivery and started selling on Alibaba among other places and other speculators abandoned the car and lost their deposit.

Tesla is on target for 4k Model S sales this year as abandoned/speculator 2014s are cleared and demand looks good on Model X. The Falcon Wing doors seem to be rather coveted in China.

Expect the refund policy to have some updates on amount of refund available as a vehicle enters production and after it ships for new markets. :\

Also expect Tesla to have on internal list of the speculative cancelers for future reference. They will likely be screened a bit more thoughtfully if/when placing a future order reservation.

+1

This.

Brian_Henderson said:

“Expect the refund policy to have some updates on amount of refund available as a vehicle enters production and after it ships for new markets. :\ ”

Actually, Tesla does not require payment upon order (except in U.S. States where State law requires that), but rather on delivery. So it’s not a matter of a “refund” to someone who refuses delivery.

Perhaps what’s needed for the China market is a hefty deposit, one that’s non-refundable in certain cases… such as a speculator who orders a car on spec and then decides not to accept it on delivery.

Or perhaps Tesla just needs to pay more attention to exactly who is placing orders. (Or not? Maybe the speculators work thru one-time-only proxies to prevent detection.)

From what I have read, Tesla has already put a new China order / deposit policy in place. Making refusal at deliver a very costly decision.

I am sure all of the head rolling on the China team had to do with the fact that they didn’t see that coming. You would think the local sales team would understand the culture.

But it wasn’t just one General Manager in China who was fired or forced to resign; it was two. Clearly there is something more going on than just one exec in China not recognizing a certain problem.

Given the angry tone of Elon Musk’s e-mails to the China team, I get the impression it’s not so much a matter of the China team not telling HQ (and Musk) what the problem is… or rather, what the problems are. I get the impression the problem is Musk wasn’t willing to listen.

No. Because of his actions now, it looks like he wasn’t given the information.

He seems to be addressing all “Chinese” problems given to him.

Its true that the Chinese economy is in a bubble, the same as the rest of the world.

But it is undeniably the largest car market, so Tesla Investors no doubt hope the slump is temporary. 1600 cars is not huge as inventories go. 60 days is considered Ideal. So if tesla has 400 days worth of cars, worst case, they should be able to unload them soon enough.

As others have said, they usually insist on a deposit. Are they getting caught in their own hype? If US buyers are waiting due to Irrational pumping of the Chinese Market, then it was definitely a mistake to keep US buyers waiting.

Right…blame the resellers…

Mu. Musk, that’s exactly the “not understand culture” part I’ve posted before.

That’s how businesses are run in China – through both official and unofficial channels (which are the resellers). That’s the same thing with the iPhones, luxury handbags, cars (especially super sports cars), etc.

If you continue to do business in such fashion – well, good luck on your business in China, especially when Tesla is banking on the Chinese market to grow its business.

Elon forgot to add “April Fools!” to the end of his statement.

+1

I greatly admire Elon Musk’s vision, and his highly successful entrepreneurship, and his skill at guiding high-tech companies to unexpected successes, and his willingness to put not merely some, but -all- his money where his mouth is.

But I’m not blind to his faults. For example, blaming others when something goes seriously wrong. First he blamed the Chinese public for not understanding EVs, then he blamed the sales executives in China, and now he’s trying to blame speculators for the not entirely surprising news that business in China is run on a Caveat Emptor basis… on steroids!

Perhaps, Mr. Musk, it’s time to man up and admit you were so eager to expand Tesla sales into the China market that you didn’t spend sufficient time and energy doing market research, and admit you failed to appreciate how business in China is run rather differently than it is in first-world countries.

You got that right, Lensman.

Chinese business is indeed a closed market. The government “needs” to control everything because of political reason. I don’t like it. I despise it. It’s utterly wrong on how things are run there, political and business wise. But, that’s reality. Companies have spent so much time, money, and lessons to learn how to do business in China.

Musk needs to seek mentorship from Tim Cook on how he runs the world’s BIGGEST company, Apple, in China.

Sorta doubting slave labor with suicide nets is gonna work for Tesla.

Apple doesn’t own Foxconn (parent company is Honhai which is a Taiwanese company).

Beside, nobody force those “slaves” to work for those factories.

As soon as there is a Foxconn factory opening up, there will be more than 10,000 people lining up to apply for it.

Apparently, people wait in lines to be “slaves” for Apple contract manufacturers…

Your right, “nobody” forces them to work there, a lot of them simply had no other prospects for employment. Sort of the Walmart of the the Asian world. If you need a job and can plug a jack into a socket, they’ll be happy to work you till you drop.

@MMF, One suggestion to you is that, before you comment, it’s best for you to know the situation of workers in China. They are reported in Asian news (outside of China, of course). Even if it’s not slavery, it’s really border line. It’s definitely worse than a prison sentence. 1. Though the workers aren’t forced into working for the factories physically, these people are usually in such a poverty and education (none) level – with debts too in many cases – that they have no choice but to work for these factories. It’s pretty much a infinite times increase of their income as we are really talking about 0 to minus in terms of what they have, to plus of hundreds to thousands per month. 2. These factories used to “LOCK” all the gates of the buildings to prevent people from leaving. Now why would that be? It’s not a prison, and no one committed any crime (that’s why, it’s worse than prison). Even if you don’t work, you can’t leave… 3. Reports of physical abuses were very common in the past. Now, when I refer to Apple, I was referring to Apple. Not sure why you diverted my words… Read more »
@London Bell or Londo Bell, Maybe you need to learn something about anything before you post again. It is NOT the first time you post something so stupid… I think we already got into arguement over the weather related issues and it turns out that March sales are still low compared with previous year even though weather has improved. So, winter is still winter and spring is still spring. Now, let me address each and every point. since you like to learn about other country condition through news outlet instead of paying a visit yourself or talk to people directly. I have and appreantly you haven’t. I worked with Chinese suppliers and have talked with people over there extensively when I visited those suppliers. So I know a little bit from those experiences. 1. Sure, poverty is a reason why people take a less desirable job than they could. That is a fact. But calling it slave labor is just ignorant and stupid. One often uses “economic slavery” as a way to justify their point. But the fact is that those “unskilled” labor in China are no different than 50 years ago. They used to work the field and living… Read more »
electric-car-insider.com

I don’t read it as blaming anyone else. Tesla was misled by orders that were not fulfilled – delivery of product refused. They’re working through that backlog. Not really all that big of a deal.

+1

My personal opinion is that China is not a good place to live, work, or to do business in. Well Russia is worse, but no matter.

This is a pretty poor excuse as the Chinese are infamous for thousands of years for having no ethical underpinnings in regard to their business dealings. Of course the backlash from the colonial period and the opium wars have given the Chinese the perception that they can do whatever they wish in regards to the West, with some justification. Bottom line. Don’t trust the Chinese.

“Of course the backlash from the colonial period and the opium wars have given the Chinese the perception that they can do whatever they wish in regards to the West, with some justification”

That is the dumbest post on the internet today…

So opium wars have given the Chinese the perception that they can do whatever they wish in regards to the West?

Did you NOT learn about how Opium war got started? So, are you saying that enforcing drug laws in China is NOT within their right?

LOL.

This kind of arrogance is exactly why Tesla failed in Chinese launch.

I think it’s the long history of cheating on contracts, delivering substandard goods in all categories( food to steel ) and stealing IP.

Walmart, I can understand in China.
But, no tech firm with valuable IP.

What does this having anything to do with Opium War? IF that is NOT one of most unjust war, then what is?

Telsa doesn’t care about IP if you are using it to build EVs. Elon Musk already made the claim to give it away as long as they use it to build EVs and NOT to sue Tesla for it.

Dr. Miguelito Loveless

Wow!

You usually have attend a Klan rally to get that kind of historical insight.

Yeah, historically it’s all to easy to replace the word “Chinese” with whomever you don’t like today.

China badly need new energy cars, especially charged on their leading wind..and solar, wasted energy at night while coal idles.

And these vehicles are at least already nearer more enlightened areas like Singapore, Japan, South Korea, Ted.

“Of course the backlash from the colonial period and the opium wars have given the Chinese the perception that they can do whatever they wish in regards to the West, with some justification. Bottom line. Don’t trust the Chinese.”

This statement is totally wrong. A real life example of racism

You noticed that too?

You know, there needs to be a servey of business contracts in china.

How many companies got what they bargained for.
– Did the quality of the goods meet expectations.
– Were the goods delivered on time.
– Was your IP stolen, with a copycat knockoff sold into the Chinese market to compete with you.

Because you folks blind to Chinese fraud may be in for a surprise.

Chinese industry has a lot of issues that needs to be addressed.

But mixing that with the claim of Opium War as justification is just as racist and as stupid as one gets…

Tesla had been “misled” by their absence of knowledge of the CHN market.
you HAVE TO pair with local people to make business, especially in the car industry which is super regulated. (Apple is another story, they PRODUCE in China, and Tesla is not Apple… yet)

They also probably badly assessed the market size. EV’s are sold mostly to corporations and for city experimentations. The Retail market is very slim (albeit developing).

Local production has a competitive edge because the registration plates for such products are free and with NO WAIT TIME. Otherwise, you need to play a kind of lottery and to pay expensive fees.

etc etc…

Anyway, the Chinese Market is not yet at it’s potential regarding Li-ion BEV’s and Tesla has proabably another 1 year to straights things and to start doing business “the chinese way”.

When in Rome… keep calm and eat noodles

How about the terms “Paid in full before the cars are loaded on the ship.”

And “No refunds after the ship leaves the dock.”

Sometimes, you have to play hardball.

Sometimes you have to operate a business with less risk. Doing the above would have made sense. Sending over the first 50 to use as demo and loaners then taking 50% non-refundable to ship the car and then 10% restocking sur-charge should they not finalize the order would be good.