Tesla Motors Begins Deliveries In Hong Kong, But Hurdles Remain For Acceptance On Chinese Mainland

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Tesla In China
People look at a Tesla car at a company showroom in Beijing on July 9, 2014. Tesla has begun delivering a right-hand-drive version of the Model S in Hong Kong and is aiming for the highly protected Japanese auto market this year.

After delivering a few models earlier this month, Tesla Motors Inc. (NASDAQ:TSLA) has revved up its sales presence in Hong Kong, completing the right-hand-drive version of the Model S electric car.

Tesla celebrated the event last week at Hong Kong’s Kai Tak Cruise Terminal where dozens of members of the local press were dazzled as Dennis Lo and seven other local Tesla fans took delivery of the critically acclaimed sedan.

Jerome Guillen, Tesla’s vice president of global sales, told the audience Tesla has started working on expanding the company’s quick-charge stations in Hong Kong that allow Tesla owners to top off their batteries free of charge. Tesla currently has seven Supercharger stations in mainland China and two in Hong Kong, the company’s website says.

Tesla and founder Elon Musk are also keen to make inroads in China. But the company’s fledgling efforts to enter the market have stumbled. Many of the 31 Tesla customers who pre-ordered Model S vehicles last fall have not yet received their cars despite Tesla’s promise to deliver them by April. Now, 23 of the customers have filed a grievance with Tesla China, alleging fraud.

Delivery problems aside, Tesla faces other hurdles in China. Customers living outside Beijing and Shanghai may lack access to essential charging stations, and may have to install their own -- adding to the cost of the all-electric car, which, at $118,000, is far higher than in the U.S. Tesla cars have also failed to overcome complicated customs roadblocks.

Nevertheless, Musk remains optimistic about Tesla’s potential in China. “At some point in the next three to four years we’ll be establishing local manufacturing in China,” the CEO told Bloomberg.

China, whose cities suffer from notoriously bad air pollution, has established a target of 5 million alternative-energy vehicles by 2020.

Tesla’s next stop after China is Japan where the company will attempt to penetrate a highly protected auto market whose top automakers are working to develop their own electric, hybrid electric and hydrogen fuel cell vehicles.

In May, Toyota Motor Corp. (TYO:7203) announced it was winding down a four-year deal with Tesla, which has provided the Japanese auto giant with battery packs for its electric RAV4 crossover SUV. But sales have been slow for the electric version of one of Toyota’s most popular vehicles. And Toyota is backing away from all-electric cars as it bets hydrogen fuel cell cars will find a niche if not overtake battery technology. Toyota’s FCV hydrogen car will go on sale in Japan in April.

Meanwhile, Tesla had previously said it was planning to enter the Japanese market by the end of the summer. In the company’s second quarter 2013 earnings conference call, Musk said his company is taking the Japanese market “very seriously.”

But as U.S. automakers have complained for years, Japan’s auto market is highly protected. While it doesn’t impose protective tariffs on foreign auto imports, the country has created a system that makes it difficult for outsiders to expand market share.

For example, every car imported into the country must go through a two-day inspection by officials at the Ministry of Transport, according to the American Automotive Policy Council. And Japan’s “keiretsu” arrangement between domestic automakers and the government also impedes foreign-car market penetration. Market share of foreign automakers in Japan stands at about 4 percent, a major sticking point in free trade talks between the United States and Japan.   

But Tesla is betting its cars will be welcome in a country whose consumers are known to be early adopters of new technologies. Musk has overcome a lot of challenges in trying to revolutionize automotive transport, but whether he’ll be able to overcoming obstacles in the protected Japanese auto market remains unclear. 

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