This map shows why Tesla will not make its 5,000 unit target in China anytime soon.
Published on May 20, 2014 by Bertel Schmitt
In what we thought as a mostly adulatory article, Tycho wrote last week that boundless demand for Tesla’s Model S fuels the grey marketing activities of Tianjin car dealers. I followed it up with the fawning prediction that, based on the high demand and on what Chinese customers are ready to pay more ($13,000 above list) just to get their Model S now, I see no reason why Tesla can’t make its target of selling 5,000 of their electric cars this year in China. In the no good deed going unpunished dept., Tesla’s new China spokesperson Peggy Yang (she was just hired away from Volkswagen) took issue with the story.
“Tesla has only one official dealer in China, in Beijing,” who would not make serious deliveries before June, wrote Tycho. “Bu hao,” says Peggy: “They are our stores, not our dealers.” And furthermore: “Tesla has already begun deliveries and not until June.” And then she said something that made me revise my 5,000 unit prediction.
Well, dui bu qi. Dealer/store semantics aside, it is true that a few Model S were delivered during the Beijing Auto Show, mostly for the consumption of the media, leaving a long list of unfilled orders, so long that incensed customers threatened to take (or possibly even took) legal action against Tesla. How many customers received or did not receive a car, Peggy won’t say, citing Tesla’s somewhat unorthodox policy when it comes to sales numbers: “ We do not normally disclose delivery numbers in any individual market and we announce deliveries in our quarterly financial report.”
I checked the report for the last quarter. It said that Tesla’s “entry into China has been greeted enthusiastically.” True numbers however remain an enigma.
What is completely clear is that all those buyers of grey market Teslas are SOL, should something happen to their brand new car. Tesla’s own blog unmistakably drives home the fact – in Chinese and English – that there is no warranty protection whatsoever for those rogue cars, that expensive parts may have to be shipped-in from America, and to make matters worse, “time and travel expenses for specialized technicians” could be charged. “This policy remains unchanged,” says Peggy.
What made me rethink my 5,000 unit prediction was Peggy’s next sentence: “Tesla continues to deliver to customers when their home charging validation is completed (ie, after charging stations are installed at their permanent parking space at home or wherever they choose to, e.g. their office building) and when Tesla service centers are opened in their city.”
This is where the 5,000 unit assessment crumbles.
As Tesla’s own map shows, there currently are all but two official Tesla service centers in Mainland China, one in Beijing, and one in Shanghai. (The one in Hong Kong does not count. Chinese need a visa to get there.) If you live anywhere else in the big country, no luck. More service centers may be planned, but on the map, the “coming soon” category is empty as far as China is concerned.
Also as the map shows, Europe is literally covered with Tesla service centers, both of the current and coming soon variety. Soon, Norway’s Tromsö, a city of 71,000 people north of the Polar Circle, will sport a Tesla Service center. China’s Chongqing, a city that is home to six times the population of all of Norway, has none. This is just scratching the surface of the 1.3 billion country, and it is a major drawback of Tesla’s direct sales model, which will hold back China’s penetration for many years. If you must run all your dealers stores yourself, getting them up and running is more time and money consuming than handing out a franchise manual and collecting a franchise fee from an eager dealer. Even Europe’s situation is far from ideal. Europe’s map may look like it is covered with service centers, but counting them shows barely 20. As a comparison, Peggy’s former employer and my former client Volkswagen has some 10,000 service partners in Europe, 2,800 in Germany alone. Back of the envelope, I figure Tesla needs some 80 to 120 service points in China to bring it to a service level comparable to Tesla’s current suboptimal situation in Europe. At the cost of between one and two million dollars per center (again my estimate, based on experience,) this will require a sizable investment into China.
With only one service center in Beijing and one in Shanghai, both cities each with roughly the population of Australia, and with nothing elsewhere, Tesla’s chances of flooding the market with significant numbers will remain low to nil as long as the presence of a Tesla service center in the customer’s city is a prerequisite for delivery.