Tesla China
A laborer fixes a street lamp near a Tesla Motors showroom in Shanghai, April 22, 2014. Local media reports are citing disgruntled laid-off Tesla sales staff as saying almost half of the inventory of Model S cars languished unsold last year. Reuters

Tesla Motors Inc. is pinning high hopes on the rapidly growing population of wealthy Chinese consumers to boost global sales. But a little more than a year after entering the world’s largest auto market, the Fremont, California, automaker is facing sluggish Chinese demand for its Model S electric car, and now reports out of China are putting some numbers behind the company’s lackluster takeoff.

Citing some of the estimated 200 Tesla employees that are being laid off as part of the company’s effort to change the way it’s selling and marketing cars there, Chinese media report that nearly half of the 4,800 Model S sedans shipped to China last year are languishing unsold.

Though Tesla has not confirmed these reports, and did not respond to a Monday call for comment, CEO Elon Musk has admitted the Model S isn't selling as well as expected. The company is reportedly laying off about a third of its 600 employees in China, mostly members of its sales and marketing team.

“Musk is coming on too strong, and he will not compromise on the Chinese market,” one departing Chinese Tesla sales executive told Chinese-language website DoNews. “He’s too impatient. Managers must meet his expectations and standards or leave. Tesla’s management division in the Chinese market has had insufficient clarity and unity. ... The Chinese management’s right to speak is almost zero.”

About 2,300 of the unsold cars are reportedly stored at the Port of Tianjin and at a dealership lot in Shanghai. Others are parked at a facility owned by the largest Mercedes-Benz dealer in Beijing, according to CarNewsChina.com.

During his fourth-quarter conference call with analysts last month, Musk said his company didn’t “execute people well on China last year,” and that the sales team was misinforming potential customers of the difficulties in charging the electric car in the country.

“This sounds kind of brain dead, but our sales team was telling people that it was difficult to charge in China,” he said during the Feb. 11 call. “Even though this is not true, like that is pretty silly.”

Though the number of Model S cars sent to China is small, Tesla’s performance is being measured by how well it increases demand for them, not just how many it sells in a given month. Tesla delivered an average of 208 cars a month in China last year, but in January that number was widely reported to have dropped to 120. (Tesla doesn’t report monthly sales like other automakers.)

Telsa says it won't to be profitable under generally accepted accounting principles until after 2020, when it hopes to be selling 500,000 of its cars (the Model S, Model X crossover and a sub-$35,000 Model 3) annually, up from about 32,500 Model S sedans last year.

One anonymous Tesla source told the online news service Guancha.cn earlier this month the pent-up inventory is largely due to cancellations of pre-orders for the Model S, whose starting price in China is about 648,000 yuan, or about $103,000. The policy asked for two deposits: one for about $2,400 and a second for nearly $40,000. The second deposit was difficult to collect, says another unnamed source, according to Chinese language site zhev.com.cn. Tesla increased the first deposit to about $8,000 in an effort to dissuade cancellations.

Tesla has been simultaneously expanding its sales and marketing efforts in China while building out the infrastructure for its rapid-charge stations, known as Superchargers. The chargers offer free energy to Tesla Model S owners that can charge 80 percent of the battery in 20 minutes.

Musk says low initial demand for the car in China has more to do with convincing buyers that they can plug their cars in when needed. The company currently lists 60 Supercharger stations in China right now, including six in or near Hong Kong. These exclude the rapidly growing number of standard plug-in outlets cropping up in China.

China has been pushing increased electric vehicle use in its smog-choked cities through incentive programs to boost sales. But it also would prefer its citizens buy domestically produced electric cars, like the BYD e6, instead of buying imports, like the Model S. Because Tesla’s cars aren’t manufactured in China, the company pays a hefty import duty, which makes the cars more expensive than in the U.S. and Europe.

China's wealthy luxury car buyers also prefer much roomier back seats, since so many of them use drivers. Tesla’s Model S doesn’t have the legroom of comparable fuel-burning luxury cars. Some luxury cars are made specifically to appease wealthy Chinese consumers’ expectations of roomier sedans. For example, the Chinese versions of the Mercedes-Benz C-Class, the Cadillac ATS and the Volvo S60 (all domestically manufactured in China) are longer versions of their counterparts in other parts of the world.