Tesla joins hand with Sinomach for Chinese market

American electric-car maker Tesla recently announced its plan to enter the Chinese market. In China, it will work with Sinomach Automobile Co., Ltd and is planning to build a supercharger network in China.

Sinomach Automobile Co announced its collaboration project with Tesla and the vehicle network business on Feb.17. According to the announcement, Sinomach has provided services to Tesla Motors to obtain China Compulsory Certification for the imported fully-electric sports car Model S. Sinomach has worked with Nav Info to establish the joint-venture company Tuxin Zhisheng, of which Sinomach holds 35 percent of stakes and on which Sinomach will carry out its vehicle network business.

Working with a state-owned enterprise to probe the Chinese market

Tesla's quickened collaboration with Chinese automobile companies goes hand in hand with its future planning. Earlier, Tesla had announced that it would lift sales of its vehicle to 500,000 units in the next couples of years, including 20,000 units of third-generation sedan, 150,000 units of third-generation SUV, and 90,000 units of Model S/X and next-generation Roadster.

To achieve such a sale target, Tesla has accelerated its stride into the Chinese market. In January this year, Tesla won a trademark right lawsuit in China, and its product Model S passed the China Compulsory Certification (3C), clearing the last obstacle to its entry into the Chinese market. On January 27, Tesla announced its prices in China: the Model S85 to start at RMB 734,000 Yuan, and the Model SP85 is priced at RMB 852,500 Yuan. Industrial insiders said that the sale price of Tesla's Model S is far lower than market expectation.

Tesla's first Chinese partner has also attracted equal attention. As a large comprehensive auto services provider under China National Machinery Industry Corporation, Sinomach Automobile has a strength that is not to be trifled with. After Sinomach confirmed its collaboration with Tesla, the company's stock price surged to daily limit after it opened on February 19, closing at RMB 21.99 Yuan/share, and in the past month, the company's stock has seen rise of up to 76.34 percent. Personnel from Sinomach Automobile said that the company had helped Tesla's Model S to obtain the 3C certificate, but the income and profit of the service were well below the disclosure standard stipulated in Rules Governing the Listing of Stocks on Shanghai Stock Exchange. This collaboration would have limited effect on Sinomach, but the company had exhibited its strength and there is possibility that the company would further cooperation with Tesla.

Wang Liusheng, analyst of China Merchants Securities, said that Sinomach Automobile is the only import agent in China's import car market that provides whole-package service, thanks to its outstanding expertise, government connections, and capital prowess. Multinationals tend to work with an enterprise like this when they are beginning to develop the Chinese market. As the first Chinese enterprises to get involved with Tesla, Sinomach will gain profit when Tesla's sales begin to go up.

Breaking bottleneck and meeting market demands

Elon Musk, Tesla CEO, said before that initial demand in the Chinese market is very strong, and a greater challenge facing Tesla is how to satisfy such demand. Tesla will ship to China within the first quarter and is planning to establish service centers and lay the foundation for the setting up of supercharger network in China before the end of this year; it is expecting "significant growth" in the Chinese market this year.

It is learned that the first unit of Model S to be delivered to Chinese customer will be completed in this spring. Currently, Beijing store is the biggest and most active retail outlet in the world. The supercharger network that Tesla is planning to build in China will make it possible for drivers to charge their vehicles for free in long-distance rides. It is most likely that the network would first cover the route between Beijing and Shanghai.

The charger issue aside, Tesla car, being completely American, may face some other problems in local market, for instance, its English-language touch-screen display system. Based on past experience, localization of the in-car system of imported cars is highly necessary for Chinese users. Some brands do it well, but some hardly satisfactory. For this, Tesla has responded swiftly and said that the localization of the interface for Chinese users had been completed.

With continuously increasing demand in the market, the bigger problem facing Tesla is production capacity expansion and supplier bottleneck. Battery supplier remains the main restraint on production, but it is estimated that the problem will be markedly improved in the next half of the year. In the Performance Meeting held on February 19, Elon Musk said that Tesla may announce its plan for its massive battery factory as soon as next week. The factory will help to significantly reduce the cost of battery modules and increase the speed of battery innovation. This is crucial to the company's manufacturing USD 35,000 low-cost electric cars.

Musk revealed that Tesla hopes to ensure that it can make the preparation for it to cope with future demand growth. "If we can't meet demand, we shouldn't have stirred its growth".