Elon Musk May Clean House In China Following Tesla's Terrible January Sales

February 11, 2015

The Chinese government dreams of highways and byways filled with zero-emission electric cars. Chinese drivers, however, don't share that vision -- at least not if Tesla Motors' January sales stats are any indication.

According to numerous reports, Tesla's poor performance in China has made CEO Elon Musk hoppin' mad, and he's threatening to hand out pink slips if his Chinese employees don't do a better job of selling the company's all-electric vehicles.

After speaking off-the-record to "people with knowledge of the matter", Reuters says that Tesla only sold about 120 vehicles in China last month. That's far below the 1,000 - 2,000 units that Tesla typically moves in the U.S. each month, which dashes Musk's hopes that Chinese sales would rival those in America by 2015.

Worse, January's figures follow reports from Tesla that sales in China were "unexpectedly weak" during the final three months of 2014. In public, Musk has said that the situation should improve by the middle of the year, but in internal emails, he's put a much sterner face on it, vowing to fire any manager that was "not on a clear path to positive long-term cash flow".

Is that in itself such a big deal? Of course not. Musk is a businessman, and he's the CEO of a publicly traded company. He's expected to hire, fire, promote, and demote based on business goals.

No, the issue here isn't whether Musk's behavior is tyrannical, it's whether he's properly assessed the situation in China and set his goals accordingly. By all accounts, there are a number of obstacles that could be standing in the way of Tesla's success.

1. Leadership vacuum: Tesla's top job in China has turned over twice in the past year. Kingston Chang left in March of 2014, and his successor, Veronica Wu, departed in December. High-level transitions are always tough, and most companies lose a bit of momentum when their bosses bows out. That's not to say that they can't recover -- even Apple did when beloved figurehead Steve Jobs passed away -- but the transitions aren't always smooth. (Just think of what might happen to Tesla itself if Musk stepped down.) 

2. Slower than expected rollout of Tesla's sales network: Tesla showrooms haven't sprung up as quickly in China as the company had hoped. As a result, Chinese shoppers have had fewer opportunities to experience and purchase Tesla vehicles.

3. Relatively high price of the Model S: In the U.S., where the average household income hovers above $50,000, the Tesla Model S starts at $70,000. In China, the average household income in the highest-earning parts of the country falls below $5,000, and the Model S is priced at $120,000. To be sure, because of the country's billion-plus citizens, there are a lot of wealthy people roaming the streets who could shell out for a Model S. But the price clearly puts it beyond the reach of most shoppers in China's growing middle class, limiting its potential market.

Beyond those three factors, Musk also has to deal with the same problems facing every manufacturer of electric cars, like:

1. Persuading the public that these high-tech vehicles are safe, reliable, and worth the premium investment.

2. Facilitating the spread of a charging network to make owning an electric car easier.

Musk is expected to share Tesla's quarterly financials with investors later today. Since China's low sales likely impacted those figures -- and since reports like these have begun making the news -- we wouldn't be surprised if he addresses problems in China during the presentation. The bigger question is: will he alter Tesla's Chinese sales goals?   


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