Investor's Corner

How Will Tesla Fit into the Chinese Electric Vehicle Market?

Light Electric Vehicle in China

Light Electric Vehicle in China

Elon Musk has said in the past that he thinks Asia will be the “biggest area of expansion” for Tesla in the next several years. In particular, Musk believes Hong Kong will be the leading city in the world in terms of electric cars and serve as an example to the rest of the world on what to do. While this stands true in Hong Kong, an autonomous territory on the southern coast of China, Musk added that Hong Kong was far more receptive to Tesla automobiles than authorities on the mainland. Here’s why.

 

The new car market in China is enormous– more than 21 million were sold in 2015 — not all of them are fully optioned luxury automobiles for China’s new millionaire class. Many are quite rudimentary in comparison to what American shoppers expect.

At least 600 million people –almost double the population of the United States — still live in rural areas of China, and for many of them the vehicle of choice is an electric bicycle. Those transitioning out of an e-bike make the natural progression to one grade up – a low-speed electric vehicle (LEV). Similar to a golf cart or what is known as a “neighborhood electric vehicle” in the US, LEVs offer weather protection and can haul more cargo than a bicycle. And drivers can find a place to park them almost anywhere.

LEVs are not officially recognized by the Chinese government yet. They do not have to be registered and no license is needed to operate one. Some are single seaters, some seat two or three, many are suitable for light cargo duty. The least expensive ones cost as little as $2,000, far below the price of Tesla or any other traditional automobile.

According to Bloomberg, people who have made do with an electric bicycle for years are not troubled by the need to charge a LEV frequently. Most of them use conventional lead acid batteries and can travel only 10 to 20 miles without recharging. But for many rural residents, that’s enough. If people need to travel farther than that, they take a bus or a train.

China is anxious to slash its carbon emissions. It is installing solar and wind power faster than any other country, which makes it possible to take more and more of its coal fired electricity plants off line. A study by Science Direct finds that China’s LEVs do an excellent job of reducing air pollution from the ubiquitous diesel powered delivery vans that are in common use throughout the country. Many of those use antiquated engines that emit enormous amounts of pollutants.

Tesla is keen on entering the Chinese luxury car market, but faced with mass congestion across the big cities and the lack of charging infrastructure for long range EVs, many people are turning to LEVs and deferring their purchase of an otherwise high cost automobile to a later time. Transportation experts around the world are predicting that private car ownership may decrease substantially in the coming decades, as automobiles become more expensive and more problematic to own. The LEV trend in China could be a harbinger of changes coming to many areas of the world in the next several decades. It’s something that Tesla needs to be aware of and account for when pursuing the Chinese market.

Photo credit:  CHINAFOTOPRESS/GETTY IMAGES via Bloomberg

Comments
To Top