Tesla Model S Shows How Tough It'll Be For China To Meet Green Car Goals

January 24, 2014

Tesla's acclaimed, all-electric Model S sedan will soon go on sale in China, and this week, the company announced how much it'll cost the country's green car fans: 734,000 yuan, or just over $121,000. In America, the same vehicle would run closer to $81,000.

And that 50 percent premium helps explain why China is going to have a very tough time meeting its own green car goals.

The markup doesn't have anything to do with the cost of making the car. According to Tesla: "[T]he price of a Model S in China is the same as the price of a Model S in the US, adding only unavoidable taxes, customs duties and transportation costs." Of those three factors, we can assume that transportation is likely the least costly, with "unavoidable taxes" and "customs duties" making up the bulk.

This is a conundrum for China, and it will continue to be for the foreseeable future.

On the one hand, China wants to be a leader in environmentally friendly technology. It sees the coming sustainability revolution, and it wants to be at the forefront. That's admirable.

It also wants to clean up its notoriously filthy skies, hillsides, and waterways. For a country that thrives on regulation, China's environmental safeguards are appallingly lax, and the smog in major cities like Beijing is legendary. China hopes that the sustainability revolution will bring with it a new fleet of eco-friendly vehicles to reduce pollution. (So do we: China's dirtying up our air, too.) The country has set a goal of putting 500,000 hybrids and electric vehicles on its roads by next year. 

On the other hand, China is notoriously protective of its economy, which is why rafts of tariffs and taxes are slapped on everything made outside its borders. True, there are plenty of Chinese car companies -- around 170, in fact -- but that's not much help because (a) few of them offer electric or even hybrid vehicles, and (b) even Chinese consumers seem put off by the "Made in China" label. To fill its roadways with EVs in the near-term, China needs help from foreign automakers. (It's also going to need to find a source for electricity that isn't coal, but that's a subject for another post.)

One of those foreign automakers could be Tesla, but with China's minimum monthly wages stuck well below 2,000 yuan, 734,000 yuan vehicles are beyond the reach of most shoppers. Sure, Tesla will find buyers -- heck, CEO Elon Musk firmly believes that China will be a top consumer for its high-end vehicles. But while those few thousand sales may keep Musk's pockets well-lined with yuan, they represent just a fraction of what China needs to clean up its act.

Note, we're not saying that Tesla is the answer to China's economic or environmental problems. We're simply pointing out that China's domestic auto industry isn't positioned to take the lead on those issues right now, and there's a high bar of entry for foreign automakers. That leaves a significant vacuum. 

To fill the vacuum, either China has to foster innovation from within (unlikely for a country with some of the worst intellectual property rights laws in the world), or it has to scale back taxes on imports (equally unlikely for a country with a smoggy understanding of laissez-faire economics). Otherwise, China's "sustainability revolution" will creep and crawl, while visibility shrinks to zero.


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