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Tesla will find building a charger network the biggest hurdle in China

March 18, 2014

I wrote the piece below for Automobile and Parts, a Chinese publication. http://view.online.zcom.com/full/33764/ Since I wrote it news came out that the State Grid will allow private investment in charging networks. http://view.online.zcom.com/full/33764/
But no timeline was mentioned. And no news re: Will South Grid follow suite. Allowing private investment offers a sliver of hope for Tesla. But as always in China, implementation will be the tricky part…..
model S

Tesla’s business model – a non-automotive company that has successfully produced and marketed a pure electric luxury vehicle – seems to be much admired by some parties in China. And despite disputes regarding its distribution model with automotive dealers in some states in the U.S., Tesla http://www.teslamotors.com has sold well here. Based on that popularity, Tesla founder Elon Musk and his representatives in China are confidently predicting that Tesla will sell around 5,000 Model S electric sedans in China in 2014 and as many as 22,000 in 2015.
Those sales numbers are based on an underestimation of the difficulties Tesla will face in China, however, and won’t be achieved. Furthermore, Tesla will likely have trouble making a profit in China if the costs and difficulty of building out a distribution network and charging network are considered.
First, there is the price of the car itself. Tesla made a big deal out of the fact that it will charge “only” 734,000 RMB for a Model S sedan with an 85 kWh battery. That is the cost of the vehicle plus shipping and handling, customs and duties, and a value-added tax. Tesla’s electric vehicles come with several optional battery sizes; larger batteries cost more but provide more range. A car with an 85kWh battery provides about 300 miles per charge.
Tesla says it goal is to make the same level of profit per car no matter where it is sold. Even if Tesla isn’t making more profit, however, the price for the Model S is still more expensive then the majority of luxury cars sold in China. That price is not set in stone, by the way. Tesla will adjust the cost of the Model S in China when the USD/RMB exchange rate fluctuates, according to a Tesla spokesperson. Would someone prefer to buy an electric vehicle, even a Tesla, over say a similarly-priced gasoline-powered Porsche 911? Only a few would. http://www.forbes.com/sites/jackperkowski/2014/02/12/can-tesla-outsell-porsche-in-china/
If someone does want to buy a Tesla in China, they first have to find a Tesla store. Tesla’s distribution model relies on company-owned stores rather than franchised dealerships. In the U.S., cars are sold through dealerships owned by individuals rather than the automakers themselves. That has made Tesla the target of a handful of lawsuits here in the U.S. by the owners of dealerships. Those lawsuits claim Tesla violated the state laws governing auto dealer ownership (each of the 50 states in the U.S. has its own auto franchise law.).
In China, Tesla may not run into such lawsuits. But is will need to build out a nationwide Tesla store network to even begin to reach the sales numbers it predicts. http://www.sfgate.com/business/article/Tesla-s-Musk-sees-Model-S-China-sales-rivaling-5175447.php
So far, it has one store, in Beijing. Elon Musk has said Tesla will have stores or service centers in six metropolitan areas in China by the end of 2014. Let’s say Tesla succeeds in opening those stores by then. Will each of those stores manage to sell nearly 1,000 units each? Let’s assume they will. To achieve sales of 22,000 in 2015, Tesla will have to quadruple the number of stores it has in China, and each will have to sell nearly 1,000 units each.
I think distribution i.e. a network of stores will be the easy element of achieving Tesla’s ambitions in China, however. I believe the biggest barrier to its success will be its inability to construct a nationwide charging network. Rather than rely on public charging, Tesla constructs a network of Superchargers that only owners of its EVs can use. To date it has installed 74 Supercharger stations in North America. Each station costs US$150,000 to build, according to a Tesla spokesperson. This does not include maintenance or monthly energy costs. “We cannot yet speak to cost of location of Supercharger stations in China,” said the spokesperson. “Elon plans to visit in March and more details will be unveiled at that time.”
Elon may find that building Supercharger stations in China will be not only expensive, but very difficult. For one, each station charges at 120kw. “That is more power than an electric bus consumes,” exclaimed an executive working on EV charging networks at a foreign automaker in China.
He also asked if Tesla has approval from the State Grid http://www.sgcc.com.cn and the Southern Grid http://www.csg.cn , China’s two largest utilities, to construct the Supercharger network. That is, are they willing to provide the power? What’s in it for them? Then there are the Supercharger stations themselves, said the executive. Have they been approved by Chinese regulators?
Elon Musk has succeeded when others have thought he would fail, and his self-confidence is well-earned. He founded and sold Pay Pal, an online money transfer service, for $1.5 billion. Musk also founded and still runs SpaceX, a company which designs and launches rockets. In China, however, he may meet his match.

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20 Comments leave one →
  1. Jim Parker permalink
    March 19, 2014 2:52 am

    Hello Alysha! Charging strategy for Tesla will be critical. You may be aware of Condi (called Kandi in the US). They produce a pure EV and sell, lease and rent it in Hangzouh. They are partnering with State Grid for battery exchange and charging. Tesla could do well to team up with them to build out a common charging network. Their market target is low cost short range transportation for the urban populations so No competition to Tesla. And yes, I am a Kandi invester so you understand my bias. Go pure EV !

    • March 19, 2014 9:01 pm

      I am far from convinced that Kandi will succeed. And in any case its EVs are small vehicles.

      • Jim Parker permalink
        March 20, 2014 12:36 am

        Alysha, your comment, “And In any case it’s EVs are small vehicles” is interesting as that is one of the main reasons I think they will! Their EVs are mini compacts, slow, range bound, simple to build and, with current subsides, ridulously cheap to buy. They’re the anti-thesis of the Tesla. They’re for the urban masses wanting to drive to the store without balancing two kids on a motor bike, in the rain! Ha! Final pitch – you can rent one, same as the bike shaing model, for about 3US$ an hour! With their current pollution this little EV could be a big solution to China’s biggest problem! Yes?

      • Hong permalink
        June 2, 2014 8:11 pm

        you are too optimistic here. Chinese government or any others won’t allow those cars to get a legal plate. They are too slow and unsafe. So far in China only the Shandong province allows such cars to drive on the road, but there will be some regulations soon to abandon them. There are already too many competitors on low speed EV, but the market is really limited to golf carts, disabled people motor wheelchair etc.

  2. March 19, 2014 6:20 am

    Tesla’s battery charging stations operating in China could really help support State Grid’s attempts to stabilize and balance the grid due to their shifting demand and unstable renewable integration. It wouldn’t be very difficult to program a request from a traveling EV for an outlet or charger in advance of arrival to allow the station to recharge if it was previously providing grid stability services. I wouldn’t be surprised as well if Elon and Tesla were able to create a market for those services when he goes to visit.

    • March 19, 2014 9:00 pm

      Guess we will have to wait and see. There won’t be that many Teslas on the road so their contribution to the grid would be small. That is if you are referring to V2G being used….

    • Hong permalink
      June 2, 2014 8:14 pm

      there won’t be any interest. First Tesla station does not support V2G. Second even if they can do this in the future the modelS volume today in US is not attractive to US state grid. They would rather turn on some backup generators.

  3. brian permalink
    March 19, 2014 8:30 pm

    HI ALYSHADESPITE THE PUSH BY THE CHINESE GOVERNMENT TO IMPLEMENT THE PURCHASE OF EV’S AND PLUG-INS ITS NOT REALLY HAPPENING. THE BIG QUESTION IS WHAT NOW IF SUBSIDES DON’T WORK?

    • March 19, 2014 8:59 pm

      They haven’t worked on the consumer level but will likely work well at the municipal fleet level. The issue is consistency. The central government has changed course several times — witness its failure to include regular hybrids in the most recent subsidy policy. That makes OEs reluctant to produce hybrids and local governments reluctant to buy them. Local protectionism has also been a problem. Wan Gang, minister of science and technology, has railed against local protectionism, claiming it has held back EV development. “There should be cooperation and competition” in the industry but local protectionism has prevented that, he said. The new policy requires purchase of vehicles not made locally but we shall see how well it is implemented. If subsidies don’t work then the number of EVs on the road in China won’t be very big, to put it briefly.

  4. brian permalink
    March 19, 2014 8:33 pm

    WILL MORE INCENTIVES SELL EV’S IN CHINA OR WILL THEY MANDATE GREEN CARS?

    • March 19, 2014 8:54 pm

      Beijing can’t mandate green cars. The economy is largely market-based with planned aspects. The local governments would react strongly against any mandate and there are divisions in the central government about the desirability and feasibility of green cars. As well, there is disagreement about which technologies are the most worth pursuing, much as in the U.S.

  5. Lawrence permalink
    March 20, 2014 3:12 pm

    When it comes to EVs and the infrastructure to support them, it is a lot like the chicken and the egg.
    Who needs chickens (EVs) if there is no hope of eggs (charging stations), and who needs eggs if there is no hope of chickens?
    And then you have the ducks (CNG) and the turkeys (fuel cells) making news out there, distracting everybody from making that change away from horses (ICE), just now at least.
    Anyway, I am anxious to hear what Elon Musk’s vision is for the future of the charging industry in China, and then to see just how much cooperation and collaboration he is offered. We can’t deny that the Tesla in China will definitely get people’s attention, inasmuch as it can be considered “exotic”. And that’s what the nouveau riche love.

    • brian permalink
      March 20, 2014 4:58 pm

      China has to do more to support EV industry. Most don’t trust the technoogy

  6. March 21, 2014 3:34 pm

    Hi Alysha, great articles.

    One way Tesla can circumvent the charging network dilemma would be to use China’s new Fast Charging system, although I don’t see Musk doing this at all. Tesla Motors follows the Apple experience system, all under one family of products. The only way to do it is to appeal to the nouveau rich generation who will certainly see the appeal to buy something different than a Mercedes or Audi. Unless that generation is too conservative?

    • March 21, 2014 7:41 pm

      What new fast charging system are you referring to? The China GB standard? While a standard exists, China does not have a national fast charging network. Indeed, it has few local fast-charging points. Tesla will certainly sell some cars in China, though not the numbers Musk has floated. But the buyers will be wealthy enough to have access to an EVSE somewhere, probably at their residence.

      • March 21, 2014 10:08 pm

        Yes, that standard has to be phase one of its network strategy. I don’t see why the Chinese government would insist on their charging standard without wanting to push an infrastructure afterwards.

  7. March 22, 2014 1:55 am

    Well, we have a standard here and nobody is pushing for a nationwide DC network. China has said it wants some GB stations but that is not the priority.

    • Hong permalink
      June 2, 2014 8:17 pm

      Hi Alysha:

      How about designing a GB station that’s compatible with US and European standards too? Do you see it may have some future to sell it worldwide? We have the technologies.

      • June 9, 2014 3:21 pm

        Hi,
        China knows all about European and U.S. standards and has chosen to go its own way. And there is still not agreement on the Chinese standards. As for selling a station globally, it is a very competitive segment.
        Best,
        Alysha

  8. July 2, 2014 9:39 pm

    I think the Supercharger model might turn out to work well in cities like Beijing, since it fits well with chauffer-driven cars, assuming 120kW stations can be installed, as you point out. The chauffers can conveniently charge the cars nightly at a few superchargers distributed around the city. The public might also want access to some kind of centralized parking facility close to, or containing, a Supercharger.

    In the US, Superchargers are used to support interstate travel, while drivers are expected to do most charging at home. I question just how much home charging Beijing can support. An electric scooter in the entryway of your apartment is one thing, but a Level 2 evse is something else entirely.

    I saw lots of electric scooters and scooter charging in Beijing and Chengdu when I was there last summer. It was very heartening.

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