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Tesla’s China Game

Before the recent pandemic and stock-market turmoil, the company made remarkable gains in China’s huge EV market


Quick take:

  • After taking the US electric vehicle market by storm, Tesla set its sights on tackling the competitive Chinese EV market—the world’s largest, driven by government supports and incentives.
  • As of the first four months of 2022, Tesla sold the third-most electric vehicles in China and was the only foreign company to make the list of the country’s 10 best-selling EV vehicles.
  • Regardless of the recent market and pandemic turmoil—not to mention CEO Elon Musk’s personal antics—Tesla is likely to continue expanding its reach in the Chinese EV market over the long term.
Tesla vehicles parked outside the Chinese Communist Party’s Beijing leadership compound in January 2018, as Tesla CEO Elon Musk and Chinese Premier Li Keqiang met inside.

HONOLULU (June 3, 2022) — It has not been a great spring for Tesla. As the American electric vehicle manufacturer’s stock led the recent market nosedive and its provocative CEO Elon Musk obsessed over his bid to buy Twitter, Tesla’s factory in Shanghai struggled to maintain production amid the city’s strict COVID lockdowns and cooling demand from a wary Chinese public.
 
The tumble has been a sharp reversal, if likely only a temporary one, of the company’s fortunes in China. Just last year, the official Global Times newspaper reported that China had become Tesla’s fastest-growing market. Sales in China were largely credited with helping the company turn its first overall profit in 2020.
 
“The interest in China came naturally, because China’s overall vehicle market has been larger than that of the United States since 2008,” scholar Eric Harwit writes in a recent East-West Center AsiaPacific Issues paper, Tesla Goes to China. The world’s most populous country now also boasts its largest EV market, driven by government financial support and consumer incentives.
 
Gaining trust
According to data cited by Harwit, Tesla saw its Model 3 rank as the second-best-selling electric vehicle in China in April 2021 and was the only foreign company to make the list of the country’s top 15 EV vehicles sold at the time. This is despite a 25 percent tariff on imported vehicles that added to the cost of the car, making it less affordable than locally sourced options. (As of this past March, the cheapest Tesla model sold for about $49,900 in China.)
 
In 2017, Tesla established a factory in Shanghai’s Free Trade Zone. It was able to open its first “Gigafactory” in Shanghai in 2019 to make batteries and cars, and by 2020 it produced 140,000 Model 3 vehicles there. In 2021, it doubled its factory size to produce Model Y cars, leading to record sales for Tesla Shanghai and more cost-competitive vehicles. And by the end of the year, Tesla’s production in China represented roughly half of its 936,000 vehicles delivered globally.
 
Continued growth likely
Notwithstanding all the recent economic and pandemic turmoil—not to mention Musk’s personal antics—Tesla is likely to continue expanding its reach in the Chinese EV market over the long term. However, it may soon face another kind of challenge, Harwit writes: The Chinese government has said that it would cut subsidies on new energy vehicles by 30 percent this year, before eliminating them completely at the end of the year.
 
Still, provincial and municipal governments have continued to subsidize up to 30 percent of charging station installation costs. “In addition to the prestige Chinese consumers receive by purchasing the American vehicle,” Harwit concludes, “the manufacturing capacity and supporting infrastructure Tesla has created in China should put it in good stead with both the nation’s citizenry and the Chinese government.”

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