Tesla Model X in China

Tesla Model X in China

A few years ago, when the Model S was in its early introduction stage, Tesla hoped that demand from China will be on par with the U.S.; and as we know, that did not happen...at least not yet.

Tesla sales in China found various obstacles to overcome. One of the largest is price, at around 50% higher than in U.S. (in equivalent dollars)

The Model S prices starts at around $103,000 compared to "just" $68,000 in home market (technically now $69,500 with the 75 kWh Tesla Model S as the base offering at a $5,000 reduced MSRP).

Beside obvious shipping costs (estimated at $3,600 per car), the biggest drawback is a 25% import duty for cars. There is also 17% VAT added on top of that.

To avoid the import tax (and obvious transit costs), Tesla would need to produce cars in China through a joint venture with Chinese partner, and basically give back intellectual property/edge over competitors and 50% of the of revenue/potential profits.

Another reason is that cars in general are taxed by an additional 10% (except for approved New Energy Vehicles - of which, Tesla is not approved). Tesla also doesn't have access to subsidies up to nearly ~$10,000; all of which puts the company at a disadvantage competitively.

"The 10% sales tax on automobiles, for example, has been exempted for approved models of green cars since 2014, Tesla, however, was not included on that exempt list, according to official documents from Chinese State Administration of Taxation. Since the California-based company is not operating as a joint venture with local partners, it also has no access to the generous government subsidies for green cars, which can be up to 66,000 yuan ($9,576) per vehicle.

As local electric-vehicle makers effectively lower their prices with tax cuts and subsidies, Tesla’s already-high price tag becomes even less competitive."

The only good news is that in many cities, Tesla is approved with other NEVs for quicker and registration (free license plates), which are sometimes near-impossible to acquire otherwise.

We could just imagine that by lowering the price by 50%, sales would certainly take off, although one has to note none of these factors were unknown before Tesla entered the market, so perhaps there was a little bit too much optimism by the company out of the gate.  Still, as Tesla grows, the pricing and sales hurdles in China are all well within reach of overcoming...so the potential for great sales in the future still exists.

source: Barron's