Yahoo Finance Tesla's China Trouble
Tesla’s troubles continue in China.
The high-end electric car company plans to cut 30% of its workforce in China after struggling to gain a foothold in the market. Fewer than 2,500 Teslas (TSLA) were registered to Chinese customers over a period of nine months last year, according to research firm JL Warren Capital.
Tesla’s CEO, Elon Musk, explained the weak sales were due to misconceptions about the accessibility of charging stations. However, Yahoo Columnist Rick Newman thinks broader issues are at play.
“U.S. companies don't just automatically step into China and find success. This is a tough market, you have to figure out all kinds of peculiarities about how local markets work,” he says. “Every company needs to be in China, but it is hard doing business there, and Tesla got up to up to a lousy start.”
The Tesla (TSLA) Model S sedan costs approximately $115,000 in China. Newman notes that the high price tag doesn't limit demand in China, since there is a strong market for top-line luxury cars.
“I think there are plenty of people in China who can afford a Tesla. China clearly doesn't lack for millionaires. It's the fastest-growing big economy in the world still,” he says. “BMW is in China, and it's been there for years. Mercedes is in China. One of most popular luxury cars in China is a Buick… They've already got plenty of expensive and terrific cars they can buy and just because Tesla shows up, doesn't mean all of a sudden everything is going to magically work out for them.”
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Despite Tesla’s (TSLA) struggles, Newman thinks the company could still become profitable in China.
“Sure they can retrench and restart it and be successful in China. Elon Musk [is a] master of overstatements sometimes,” he says. “He's set huge sales targets for China and they're not going to hit those targets most likely, but that doesn't mean you can't succeed there.”
Newman expects the market for electric cars in China to keep growing.
“China actually is very enthusiastic about electric cars, they're supporting electric infrastructure, they're subsidizing some homegrown companies… [Tesla] just has to keep working it.”
