Overall, China has greeted Tesla mostly with open arms as the country tries to push electric vehicle purchases to reduce the country’s problematic air pollution.
However, things are not fully concomitant between China and Tesla at the moment. Recently, China decided to lower the price of cars eligible for its electric vehicle subsidies, to a price lower than the Standard Model 3. In response, Tesla may have to lower its prices in China by about 7.3%.
Not only that, but Tesla recently encountered an issue with Pinduoduo (NASDAQ: PDD), a discount e-commerce site that has made its way into China in recent years. Recently, Pinduoduo offered to subsidize five random Tesla purchases for customers if 10,000 people signed up for a promotion in July.
But Tesla refused to deliver the cars to the winners of the competition-type bid, even though the automaker reportedly received the full price for the cars. Here’s why.
Tesla risks alienating Chinese consumers
Tesla’s sales method is unique in the automotive industry. Part of the company’s model and brand promise is that it controls every part of the process, from vertically integrating its own proprietary chips and batteries to selling it directly to its customers, bypassing traditional dealers.
Pinduoduo’s contest, as well-intentioned as it was, inserted a third party between Tesla and its client – or that’s what Tesla claims. Pinduoduo, along with its offering partner, Chinese car dealership Yiauto, never took possession of the Model 3 vehicles, according to the Morning Message from South China. Instead, Pinduoduo arranged the sales directly between Tesla and the buyers, and then subsidized the purchase to the buyer in a separate transaction.
At first, investors may think, “Why would Tesla do this?” After all, the electric vehicle maker was getting the full price of the vehicle, not the subsidized price offered on Pinduoduo. Additionally, the company risked negative press in China for disappointing customers, as a screenshot of Tesla’s refusal was posted on the country’s social media. In a statement, Pinduoduo said:
We are disappointed that Tesla made it difficult for some of their fans to get the car of their dreams. We value the trust our users place in our platform and will do everything possible to protect their rights. We put the interests of our consumers first and support them.
Pinduoduo then took to the micro-blogging site on social media. Weibo, stating, “Tesla rejected the order from the customer who had no intention of reselling the vehicle and had it intended for personal use… it was Tesla who refused to deliver on an order contract with a consumer. ”
One of the buyers is also considering filing a lawsuit against Tesla, according to Chinese news agencies.
Control the brand is the name of the game
The reason Tesla was so tough on promoting Pinduoduo is not so much about the particular transactions, but rather Tesla trying to clarify the rules of the road at the start of his trip to China. Tesla’s business model, on the whole, involves a luxury product. Even the Model 3, although it costs less than other Teslas or luxury cars, is generally more expensive than traditional mid-tier and lower-level gasoline sedans.
Thus, on the price as well as on the customer transaction experience, the promise of the Tesla brand is to control every step of the journey. While the Pinduoduo offering per se might not seem like such a breach, Tesla is likely looking to lay the groundwork early in China, where purchasing products through third-party websites is common, as is piracy and hacking. ‘other problems for big brands.
Considering Chinese habits, this might not be the last time Tesla has harassed Chinese consumers in the future.
Will Tencent moderate?
Interestingly, Chinese internet giant Tencent is an investor in both Tesla, in which it has a 4% stake, and Pinduoduo, in which it has a 16.5% stake. So it may be up to Tencent to act as moderator in this case.
Still, whatever the end result of that little tiff, investors should be prepared that Tesla’s Chinese journey hits more bumps in the road, so to speak, as the big American brand hits the road. Chinese culture.
China was actually the only growing market for Tesla last quarter and is of critical importance to the automaker going forward. Since the large Chinese market is so important to Tesla, and possibly a major factor behind the massive rally in stock this year, Tesla’s relationship with the Chinese government and major Chinese companies is worth watching.