Why Tesla In China Is Much Harder Than It Sounds

China represents a car industry that is on the verge of exploding and represents one of Tesla’s most lucrative opportunities. There have been rumors flying back and forth of Tesla starting up production in China, but none of those ended up being true, and any future plans to open up shop might come harder than expected.

Tesla can continue importing cars to China, but in 2016, only 3.5% of new vehicles in China imported. This represents a very small opportunity for Tesla unless it produces out of China. Production is difficult because of a recent plan to halt issuing permits to produce electric vehicles (per Bloomberg):

“China plans to halt issuing permits to produce electric vehicles because of concern additional approvals may lead to a glut in the world’s biggest auto market, according to people with knowledge of the matter.

The National Development and Reform Commission, which oversees new investments in the auto industry, wants to evaluate the program after handing out 15 production licenses since March 2016…”

There are a number of hoops to jump through if you are a foreign OEM wanting to produce an electric vehicle in China:

  • No foreign OEM may produce a car in China on its own. An at least 50:50 joint venture with a domestic maker is needed. There is talk that this may change some day, but so far, it has not.
  • Then there is the “strong suggestion” by the Chinese government to sell that domestically produced electric vehicle under a new Chinese brand, owned by the joint venture. There is no foreign-branded EV made in China.
  • Then, to qualify for subsidies by the central government, the batteries used in the electric vehicle must be from an approved manufacturer
  • And finally, the joint venture must secure a long list of licenses. The toughest to get is the one from the National Development and Reform Commission [NDRC], essentially the state planner. According to the Bloomberg report, the NDRC stopped issuing these licenses, after handing out 15 of them since 2016. The Volkswagen/JAC JV was the last enterprise to get one.

  • China is the world’s largest EV market, but with hefty restrictions in place like these, who knows if Tesla will get a piece of the pie? Things may change at some point but as of now, it looks like Tesla is better off focusing on their India expansion.

    SOURCE | Forbes

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