China International Business Daily published a hit piece on Tesla recently, but repeatedly transliterated the company’s name incorrectly as ‘Stella’. Nikola Tesla, the famous Serbian-American inventor and electrical engineer after whom the car company was named is probably laughing somewhere. The company’s name is not the only thing the article got wrong.
The author Wu Yue (??) gives four reasons why the Tesla business model is not appropriate for China to follow:
1. China does not have an environment for private company innovation.
2. Wealthy individuals in China lack understanding of environmental or high technology issues
3. ‘Stella’s’ advanced battery management system is difficult barrier by domestic companies to overcome
4. China is only appropriate for the development of small, low cost city electric vehicles
Wu goes on to argue that it was ‘Stella’s’ superior battery management technology that allowed Tesla to succeed and that domestic companies are unable to overcome this technical barrier. In the end Wu credits some anonymous China battery expert with the four reasons why the Tesla business model is not appropriate for China.
I believe Wu and his ‘anonymous expert’ are wrong:
1. China has plenty of private companies which have excelled in innovation, even beyond USA standards. Alibaba, BYD, Great Wall and Geely all come to mind.
2. I suspect neither Wu or his anonymous expert are wealthy. Many of the wealthy Chinese I know are concerned with the environment. Indeed many of China’s worst polluters may buy a Tesla just to demonstrate they care about the environment.
3. I personally know of at least three different Chinese companies working specifically on battery management. China manufactures more batteries than any other country in the world.
4. Since electric vehicles cost more than gasoline powered vehicles, it makes great sense to develop a car which targets wealthy consumers. A foreign branded locally manufactured vehicle would likely sell very well in China. The Tesla Model S should also sell quite well in China.
What is more intriguing is why this article was written at all. In China newspaper articles are written most often either because somebody paid to have them written or to reflect a coming change in government policy.
This retrenchment of China’s government policy toward electric vehicles explains the delay in the renewal of electric vehicle subsidies for private consumers. It is also in line with the last minute pull back by DongFeng and Geely in their negotiations to purchase Fisker Automotive and with GM’s announcement that they will delay the introduction of the Chevrolet Volt in China. At Auto Shanghai the universal message from automobile manufacturers was “we are working on electric vehicles but now is not yet the right time”. Wu’s article makes perfect sense when viewed as a justification for the push back in government support for China’s electric vehicle industry.
But is this the right policy?
Why has Tesla’s stock price gone through the roof? Because they succeeded at something when everybody else in the USA car industry was saying the same thing: “we are working on electric vehicles but now is not yet the right time”. It took somebody from outside the automobile industry to make Tesla a success. Wu’s first argument against the Tesla business model was probably based on government restrictions which make it impossible for a startup company to register a new automobile manufacturing company in China. Instead of arguing why Tesla’s business model is not right for China, Tesla’s success should be used to argue for a change to China’s automobile manufacturer licensing policy.
On one hand China wants to own advanced world-class automotive technology and on the other hand China denies a suitable environment for local Chinese entrepreneurs to develop that technology. When will the China government learn that whenever you negotiate a technology transfer you are purchasing outdated technology. No matter how new the technology is, with technology transfers China will always lack the ability to develop and own even newer technology. Only with home grown technology will Chinese companies truly ‘own’ the technology.
Twenty years ago when China was first opening up it was relatively easy to register an automobile manufacturing license. This policy resulted in the registration of literally hundreds of automobile manufacturers all over China. From those rise the brands we see today. Along the way many smaller manufacturers have disappeared or merged with larger companies. Indeed BYD purchased one of those companies to get into the automobile manufacturing business. This is natural and reflects a healthy business environment.
If anything the China government should create a new automotive manufacturing license limited to electric vehicles with registration open to startup entrepreneurs. This policy would promote creativity and foster this burgeoning manufacturing sector. If the major players in China’s automotive industry are so sure that “now is not yet the right time” then they should have no problem with smaller electric-only automobile manufacturers popping up all around China. Without an environment with incentives to succeed, China entrepreneurs will never be able to invent the next ‘Model T’.