Electric carmaker Tesla Motors Inc. (NASDAQ: TSLA) is planning to make a splash for itself in China, but how it is going into China is raising eyebrows elsewhere. This is one of those scenarios that comes with great opportunity, as well as one that comes with great risk.
The normal way luxury brands price their cars in China is to double what it charges buyers in their home countries. Tesla is going to charge a lot for its electric Model S model — 734,000 yuan, or about $121,000.
But that represents only a 50% premium over what it charges U.S. buyers. Most of that premium is to cover shipping, import duties and taxes. It includes nothing for building a charging network across the country.
“We care about fairness, and we care about transparency,” Tesla said in a blog post. “We care about advancing the cause of electric cars in China.”
The Mercedes S 400 Hybrid has a sticker price of about $90,000 in the United States, the Asian news site Tech in Asia reported. The same model in China sells for more than 1.4 million yuan (about $230,000).
Tesla has no problem selling vehicles. It delivered 23,450 cars worldwide in 2013 and has a multi-month waiting list of buyers.
The real reasons for its China pricing may be political and practical.
The country has criticized foreign automakers for excessive pricing. So Tesla may not want to offend, especially since it sees China representing perhaps a third of its global growth this year. Tesla has just one Chinese showroom now — in Beijing — but wants to add showrooms in 10 to 12 cities by the end of the year.
The move may not exactly cheer shareholders, who would expect the company to charge as much as the market would bear.
They have little complain about. Yes, shares were off $4.25 to $177.25 on Friday, falling with the stock market overall. But they are still up nearly 18% this month after a 344% gain in 2013.