That year when the billionaire entrepreneur went to a friend’s birthday party in Shanghai, his e-car company was in the midst of racking up losses to the tune of US$ 396 million. The company appeared to make a sharp turn from groundbreaking to bank breaking.
But after 2012, the company’s sales took off and its stock price soared from just above US$ 30 in April 2012 to more than US$ 200 per share in April this year.
In January, the company was received with brimming enthusiasm in China on the announcement of its move into the market. The introduction of its flagship sports sedan, the Model S, received early reservations from all over the country.
When Musk visited this time, he came to announce Tesla’s plans to enter the world’s biggest auto market and to witness the first batch of Tesla cars getting handed out to buyers in Beijing and Shanghai.
Tesla has delayed delivery to those living outside of the two cities, Musk said, because it is necessary to maintain a high quality experience for customers. The company has yet to build charging networks or service centers in other parts of the country.
The company plans to invest heavily on establishing the charging facilities and services as soon as possible, Musk said. But Li Yusheng, a researcher at CIConsulting, said working with the electricity grid companies might be difficult. Power transmission in the country is controlled by two state-owned companies.
Musk said he envisions charging stations that could be completely powered by solar power, independent of the grid – although connecting to the grid would yield greater energy-efficiency.
Having Tesla cars cruising across blacktop pavement in Beijing and Shanghai is just the beginning. In three or four years, Musk plans to have cars produced in China, which will mean setting up a joint venture with a local partner. But the Silicon Valley entrepreneur said it’s too early to talk about the specifics.
“We’re not engaging in those discussions right now because we’re so small as a company,” he said. “One needs to crawl, then walk, then run, and we’re still in the crawling phase.”
Going forward, Tesla will try to build local factories and engineering centers and try to work with the government to get on the list for consumer subsidies geared toward promoting electric cars, Musk said.
In a recent interview with Caixin, Musk discussed Tesla’s strategy in China and the future of sustainable transport. Excerpts of the interview follow.
A Wild Card
Caixin: You used to say that China was a wild card. Why did you decide to play the wild card?
Elon Musk: There’s no question that China is an extremely important market. The stated goal at Tesla is to help accelerate the advent of sustainable transport. If we don’t do something in China, then we are not succeeding in our goal. I think it’s extremely important to sustainable transport that we regard China as an extremely largest market, then we’re not succeeding.
What do you think is the biggest challenge for your product right now in the Chinese market?
We’ve got a lot of work to do now, because we’ve got a lot of service centers and charge stations to construct. Mostly, we’re trying to build our service and charge infrastructure as fast as possible. And I know that some of the customers who’ve ordered a car, they are not in the major cities, so they’re unhappy with us because we’re delaying the delivery of their car. In fact I’m going to apologise to some of them personally and explain the reason we’re delaying the delivery. We really want to them to have a good experience. If they’re too far from a service center, and the charging is not sorted out, then they will not they will not have a good experience.
What is Tesla’s strategy in China? How are you going to play the China card?
Our strategy is very straightforward. In the case of China, we wanted to establish service and charging infrastructure throughout the country. So we’re going to make a big investment in charging and service. In probably about three or four years, we expect to do local production of cars, because it’s not going to make sense long-term to be transporting cars from California to China. It makes more sense to do local market production. I think we’ll probably have an engineering and development center in China as well.
The policy in China requires that you open a joint venture with a Chinese partner in order to produce locally. Do you have a potential partner in mind?
We’re not engaging in those discussions right now because we’re so small as a company. One needs to crawl, then walk, then run, and we’re still in the crawling phase. I’ll be handing over the first cars ever to customers, ever, in China. It’s all very early for us. Maybe we will have discussions in a year or two.
Have you heard of subsidised electric cars? Would you consider access to subsidies as a condition for your business in China?
I think that to some extent this has to be the decision of senior policymakers. They’ve clearly stated a goal of having a large number of electric cars on the road in China. To the degree that we have import tariffs and do not have access to any electric car incentives, electric cars will be more expensive and delayed in making it to the road. I would certainly hope and request that Tesla have access to these incentives, with the clear understanding that we’re going to do local production long-term, but it’s too early for us to do it now.
Charging infrastructure is essential to electric cars. What is your plan for building charging networks in China?
We have a technology called the Supercharger, which is a very high-speed charger. We are going to be placing Superchargers throughout China, so you’ll be able to drive almost anywhere – maybe not the desert and the interior, but almost anywhere on the coast. Our Superchargers combine high-speed charging with solar panels. This is an important combination, which addresses both the generation of energy and the use of energy.
A frequent rebuttal is that even though the car is electric, the energy comes from coal, and therefore it’s pushing pollution to the power plant. In order to rebut that objection, it’s important for us to combine solar paneling with each charging station.
Given the use of solar power, do you still have to work with electricity distributors such as the State Grid?
It’s possible for us to make the charging stations completely independent of the grid, because we also add a stationary battery pack, which charges the car. This gives the car a 24-hour-a-day charging capability. However it’s usually still advantageous to connect to the grid, because there are times when we’ll produce excess energy that we can then provide back to the grid. We want each charge station to be energy positive so that it generates more energy than is being consumed during the week, and is thus a net benefit from a pollutions viewpoint.
Now this makes me more concerned about the smog in China. Will solar charging capacity be affected by this?
On some days, if it’s very hazy, the solar power will be reduced. We have to have to more panels to generate necessary power. It just means that we have to more panels than otherwise necessary.
Do you consider Chinese electric car maker BYD your major competitor?
I don’t really think about competitors all that much. The goal of Tesla really is to accelerate the advent of electric cars, it’s not to take market share away from other companies, or do any of that sort of thing.
The Future of Electric Cars
Tesla is different from conventional car companies in both products and sales methods. Many people think of your models as disruptive. Will the Tesla model influence the whole car industry?
We certainly want to influence the car industry to move faster in the direction of electric cars. From my observation, what really gets the car companies to move, are two things: One is government regulation, and the other is competition. So I was always hoping that they would move more into electric cars of their own accord, but this does not seem to be happening.
In China, despite strong pressure from the government, there are still not very many electric cars on the road. I think the thing that will get them to move is competition. So if they think that Tesla will take their market share if they don’t act – they will act. And the success of the Model S last year is already causing a number of car companies to take electric cars more seriously.
Electric cars and hybrid cars are two possible directions. Which one do you think will be the future?
It seems very obvious that all transport will be 100 percent electric, with the exception of rockets, unfortunately, because there’s no way around Newton’s third law. So I think everything will be completely electric, it’s just a question of when.
For a while at Tesla we considered doing a plug-in hybrid, but as we got into the details of the design, we found it was just impossible to make a great car, a great plug-in hybrid, because you split the baby. If you’re an engineer and you’re given a certain amount of cost, and mass, and volume, you can make a great electric car, or you can make a great gasoline car. But you can’t make both, in one package; it’s not possible in my opinion.
In the past, the change always came from within the auto industry, which is quite mature. Where did you see the opportunity to change the industry from the outside?
We’ve only just begun to have an effect on the existing industry. In fact, until last year, all the other car companies thought we were going to die. Their recognition of the success of the Model S is only about one year old, it’s very recent. It’s kind of a progressive recognition.
I think there’s still a lot of doubt about the ability to create an affordable, long range electric car. The Tesla mission will still be very premature until we create that car, which has been the goal of the company from the beginning.
Consolidation of car companies around the world has been frequent recently. What do you think will be the future landscape of the car industry?
The car industry is a very old industry. One of our partners, Daimler, who created the internal combustion engine car, has been around for about 150 years. Things have generally been pretty slow-moving in the car industry. I would imagine that, long-term, it really depends on how the transition to electric cars goes, and which companies embrace that transition, and which companies fight that transition. The companies which fight that transition will, I think, face a relative decline in market share.