Tesla plugs in
Despite disappointing progress in China’s plan to put hundreds of thousands of new energy vehicles on its roads by next year, American electric car maker Tesla (Nasdaq: TSLA)has made remarkable progress despite its late arrival to the market. The company has won its strong initial results though a smart combination of savvy marketing and initiatives to encourage building of necessary infrastructure to support its buyers.
The latest of those initiatives saw Tesla last week announce a partnership with Unicom (HKEx: 762; NYSE: CHU), China’s second largest mobile carrier, to install charging stations at hundreds of Unicom outlets nationwide. (English article) As a result of these and other efforts, Tesla has been the lone player so far to succeed in China’s broader consumer market, an area that will be critical to achieving Beijing’s goals.
Other Chinese aspirants like BYD (HKEx: 1211; Shenzhen: 002594; OTC:BYDDF), SAIC (Shanghai: 600104) and Geely (HKEx: 175) would be wise to follow this example, allocating big funds to forge partnerships and create similar marketing campaigns to convince Chinese consumers that electric vehicles (EVs) are not only good for the environment, but also fun to drive.
Beijing has been pushing hard to put more new energy vehicles on its roads, in a bid to clean up the nation’s air and develop new technologies. Yet despite generous subsidies and other incentives, the nation currently only has about 78,000 such vehicles on the road – far less than the 500,000 that Beijing had originally targeted by 2015.
A big portion of those are buses and taxis purchased by local governments and other state-owned enterprises, whose decisions that are often motivated as much by politics as by economics.
What’s really needed to jump-start sales is development of the consumer market. Just last week, Beijing announced yet another round of incentives to attract consumer buyers, saying it would stop levying sales tax on 17 new energy car models. (English article) The move complements existing direct subsidies that are already available to buyers of such vehicles. But consumers remain wary, not only because of high prices but also over image issues and lack of supporting infrastructure.
Tesla’s success story goes back to the vision of its founder, Elon Musk, who realized that special marketing and other efforts would be needed to get consumers to accept EVs. He realized such cars are seen as experimental technology that often comes with problems, and that consumers would worry about lack of necessary infrastructure like charging stations and maintenance facilities.
The company proceeded to tackle the problem by targeting the high end of the market, selling cars with a starting price of $70,000. Targeting such wealthy consumers allowed the company to use the most advanced and reliable technology, and also to market itself as an elite brand.
That strategy has worked very well in status-conscious China, where Tesla only began taking orders last year and made its first high-profile delivery in April at an event that coincided with the nation’s biggest auto show. During that time, the company had embarked on a slick campaign highlighting its state-of-the-art technology, combined with a trendy angle that appealed to people wanting to become the first to own the latest cool and expensive gadget.
As a result, a number of China’s high-profile elite were among the first to sign up as buyers when Tesla delivered its first EVs, including the owner of the Lifan soccer team and the founder of Autohome, China’s biggest online car website. Musk further boosted his company’s profile by holding high-profile events where he personally delivered the first batch of cars to their new buyers, creating buzz through a slick campaign that was widely followed by domestic media.
Since then the company has worked hard to maintain its momentum and build up its order book, with an aim of selling thousands of cars in its first year. In its latest initiative, Tesla announced the new Unicom partnership last week to make charging its cars more convenient. Under that deal, Tesla and Unicom will build charging posts at 400 Unicom outlets in 120 cities, as part of Tesla’s broader commitment to spend hundreds of millions of dollars on such stations in China.
This kind of high-profile announcement, combined with its previous savvy marketing campaign, is helping Tesla to succeed despite an arrival to China that’s already several years behind more aggressive domestic names. Some of those names, including BYD and Geely, should think hard about investing big money not only in product development, but also in high-profile marketing and infrastructure campaigns if they hope to find success in the broader consumer market.
Bottom line: Chinese new energy car makers need to invest more money in marketing and infrastructure to copy the success of Tesla in the market.
Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young´s China Business Blog, commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, The Party Line: How The Media Dictates Public Opinion in Modern China.