China's state mouthpiece just put Tesla on notice

Tesla China ChineseA man looks at Tesla Motors' Model S P85 at its showroom in Beijing January 29, 2014.REUTERS/Kim Kyung-Hoon

  • Tesla recently said in a Weibo post from its official account that it would provide 0% financing and a license plate rental service for customers in Beijing.
  • Renting out license plates in the region is "technically illegal," Tu Le, the founder of Sino Auto Insights, a Beijing-based consultancy, told Business Insider.
  • China's state media published an article questioning the legality of the offer Tesla made to customers in the country, and suggested that the company be investigated by authorities.
  • It's yet another sign that Tesla still faces difficulties navigating the Chinese market.
  • A Tesla spokesperson told Business Insider that the company does not rent license plates in Beijing, and said that it has updated its Weibo account to reflect that. The spokesperson declined to respond to repeated questions about whether or not breaking Chinese law had previously been the company's policy or if the post was a mistake.

  • Trump's trade war, a declining Chinese auto market, and a swiftly changing Chinese electric vehicle market are also adding complexity to Tesla's move.
  • Visit Business Insider's homepage for more stories.

On Tuesday Chinese state media mouthpiece the Global Times put Tesla on notice with a story headlined "Tesla's new discount policy in Beijing draws concerns over legality on Chinese social media."

The article took aim at Tesla's promised discount to Chinese customers. The company, which is building a plant in China to manufacture cars for that market domestically, promised 0% financing and a license plate rental service for customers in Beijing.

The latter part - the license plate - is a huge deal. In Beijing, the number of auto licenses issued every year is capped, and they are given out based on a lottery system. Electric vehicle (EV) owners get most of that quota in 2019 (60,000 out of 100,000), but even those applicants can still wait as long as 8 years for a license. As of last December, three million people are on the waiting list, according to a report by China Daily.

So Tesla's offer is a sweet one, but as the Global Times notes, it's also illegal. Apparently, Chinese netizens noticed that too.

From the story:

Industry insiders said that the measures signaled the carmaker is betting big on Chinese market despite the trade war and fierce competition from Chinese electric start-ups.

But some consumers and netizens do not seem to buy the explanation for the policies, with some even reporting and forwarding Tesla's announcement to the official Weibo account of the Beijing Municipal Commission of Transport (BMCT).

"It's a big discount, but are you sure your license plate rental service is not on the edge of the law? This is a violation of policy," asked a Weibo user named Yuanlaiyoushiyitian.

A Tesla spokesperson told Business Insider that the company does not rent license plates in Beijing, and said that it has updated its Weibo account to reflect that. The spokesperson declined to respond to repeated questions about whether or not breaking Chinese law had previously been company policy.

Tesla's timing isn't helping

This is coming at a delicate time for Tesla, Chinese electric vehicle companies, and the Chinese auto market. Tesla, coming off a disastrous first quarter, has yet to build its first car in China and experts tell Business Insider it still has a lot to learn about doing business in the country.

"They have a ton of challenges ahead just to get the cars on the road," Tu Le the founder of Sino Auto Insights, a Beijing-based consultancy, told Business Insider.

As for Chinese electric vehicles companies, they are facing tightening government regulations and fewer incentives for electric vehicles buyers. The government is trying to shake out weak hands in the market - where recently rolled-back incentives created hundreds of EV startups, some of which have never manufactured a single car.

And then there's China's auto market overall, which has continued a decline it started last year. The fact that $72 billion worth of inventory will be out of compliance with new emissions standards set to take effect in July isn't going to help matters.

Neither does Donald Trump's trade war with China. One netizen quoted in the Global Times story said that officials should crack down on Tesla's license plate promise because China had been "pushed to this point amid an escalation of the trade war."

"Renting out plates is technically illegal but people still do it," Le said. "I haven't heard of any crackdowns but this is a different time, especially if the domestic EV startups struggle."

Le says that the Chinese government will want 10-12 of the strongest domestic EV companies to succeed because it believes that manufacturing that kind of technology is China's future. It already bailed out Tesla's rival Nio, for example.

For Tesla to succeed, it's going to have to keep not only the Chinese government and its media on its side, but also the country's netizens. Image matters, and Tesla already faced protests in China back in April when it cut prices suddenly and customers who'd just bought cars beforehand felt snubbed.

There was a reminder of that misstep in the Global Times story too. It said that "Tesla's frequent sales adjustments have also tainted its image among Chinese consumers" and quoted a young Beijing resident who said they would prefer to buy from a domestic EV maker.

Get the latest Tesla stock price here.
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