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Tesla Goes For Aggressive Pricing In China

Jan 23 2014, 2:08am CST | by

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Tesla Goes For Aggressive Pricing In China

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Tesla Goes For Aggressive Pricing In China

Tesla has announced pricing for its Model S sedan in China and in a surprise has decided to match its U.S. price, with one caveat. The large-battery version of the car — which appears to be the only one headed for China — will start at 734,000 yuan, or around $121,000. The entirety of that $40,000 difference between the $81,070 U.S. price and what you’d pay in Beijing or Shanghai is due to what Tesla calls “unavoidable” charges, including taxes, import duties and transportation charges.

The company posted on its blog that it considers this a radical experiment: “This pricing structure is something of a risk for Tesla, but we want to do the right thing for Chinese consumers. If we were to follow standard industry practice, we could get away with charging twice as much for the Model S in China as we do in the US.” It is aware that avoiding the traditional foreign-car markup means that consumer perceptions of the vehicle might take a hit. “We’re doing things differently, even if it means that some people might [think] the Model S has less value than its competitors.”

There’s no doubt it’s a gamble. The Mercedes S-Class starts at 1.25 million yuan in China while the flagship S500 starts at 2.1 million ($206,000 and $345,000 respectively). Compare that to the U.S. where the S550 is offered at $93,000 and up, much more comparable to Model S pricing here. Tesla had some pointed words for other manufacturers, though it didn’t call out any by name. “We know we could charge more. We know that our competitors will try to convince Chinese consumers that our relatively lower price tag means the Model S is a lesser car, when the real reason their car costs more is that they make double the profit per car in China compared to the United States or Europe,” the blog post read.

Tesla made it clear the pricing would include access to a Supercharger network in China, which it hopes to build. At the recent Detroit Auto Show, Tesla vice president Diarmuid O’Connell told the Wall Street Journal that Tesla was beginning the process of building its high-speed chargers there as it has done in the U.S. and Europe, likely first between Beijing and Shanghai. “We’re beginning to speak with the folks that we need to speak with,” Mr. O’Connell told the Journal.

In the meantime, the company has a great deal of other work to do. It’s currently only got one sales and service location in Beijing and needs to expand there as well as into Shanghai. Still, it’s optimistic about China, where customers have been placing $40,000 deposits for its Model S and upcoming Model X SUV. The aggressive pricing is likely to help drive sales and please those early adopters, who put the money down without knowing what the ultimate cost would be.

CEO Elon Musk has expressed cautious optimism about Asia, and particularly China in the past. He has suggested that volumes in Europe would likely match U.S. sales, which totaled around 20,000 Model S sedans last year. But when asked about Asia, you could sense that he believed the range of outcomes was anywhere from somewhat less to much higher. It will bear watching to see how targeting a lower price works for the company. The greater accessibility of a less-expensive car will be balanced against the competitor marketing Tesla raised the possibility of.

For the moment, the company is unfazed. “We decided to take a chance anyway,” it said. “We care about fairness, and we care about transparency. We care about advancing the cause of electric cars in China. And we care about doing the right thing for our customers – no matter where they live.”

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Source: Forbes


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