Tesla CEO Elon Musk with Ying Yong, former mayor of Shanghai, during the groundbreaking ceremony for a Tesla factory in the city. STR via Getty Images
Tesla is having a difficult time in China, the world‘s largest car market.
The company has built an electric car ecosystem there that could help its competitors succeed.
Elon Musk seems interested in strengthening Tesla’s China business.
Tesla faces tougher years in the Chinese market – and the timing couldn’t be worse for the company.
Elon Musk’s automaker has received preferential treatment from the Chinese government for many years. When Tesla began building cars at its Gigafactory in Shanghai in 2019, it became the first foreign automaker to fully own its production facility.
The Chinese government also provided loans, tax breaks and subsidies to Tesla, and in return boosted the local supplier base as Tesla worked with companies to source new, lower-cost materials and components.
Creating this ecosystem around the Shanghai factory changed the way electric cars were built in the world‘s largest auto market. That may have planted the seeds of the intense competition Musk now faces in the region.
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After years of steady growth in China, Tesla sales are declining
Tesla sold 62,167 cars in China in April, down 18 percent from a year ago, according to data released Tuesday by the China Passenger Car Association.
Local rival BYD, a former battery maker that dominates the electric car supply chain, surpassed Musk’s company with 145,576 battery-powered vehicles sold in April.
Now Tesla has to fight with domestic competitors
China has fueled Tesla’s explosive growth over the past five years, making the company the world‘s most valuable automaker and the leading seller of electric vehicles. But in the meantime, Tesla has played into China’s hands by teaching its local supplier base how to build better electric cars and mass-producing them on a large scale.
Now Tesla must contend with domestic competitors that benefit from the same electric car ecosystem the company helped build. Thus, it may have planted the seeds of its own demise in the region.
This strategy of luring an industry leader to the region with preferential treatment to spur innovation in the rest of the sector is not new to the Chinese government.
Take Apple for example. China has given mountains of economic incentives and tax breaks to the California tech company’s iPhone maker, Foxconn. Today, a majority of Apple’s most popular products are manufactured in China, making the country the center of the smartphone manufacturing ecosystem.
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Tesla is sending reinforcements
The challenges in China couldn’t come at a worse time for Tesla. Musk has tried to keep up with BYD by cutting prices in China over the past year. However, the company is running out of pricing flexibility as the global slowdown in electric mobility catches up with Tesla.
Cheap Chinese cars are also competing with Tesla in key European and Scandinavian markets, a traditional Musk stronghold. While BYD’s Dolphin Mini isn’t sold in the US, it costs just $21,000 in Mexico, compared to Tesla’s cheapest Model 3, which is currently priced at $39,000.
In Tesla’s home market of the United States, similar price cuts are losing their luster as traditional rivals like Ford and GM are able to draw on profits from the gas business and newfound interest in hybrid vehicles, which Tesla doesn’t build.
After his recent visit to the region, Musk appears to be sending reinforcements for the Chinese market. Tom Zhu, one of Musk’s most trusted executives and the architect of Tesla’s success in Shanghai, is returning to the region even as the company looks to introduce full self-driving software.
This article was translated from English by Jonas Metzner. You can read the original article here read.
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