The China Opportunity Is a Game Changer for Tesla Motors Inc.

Tesla Motors Inc. just started selling cars in China, but this could be its largest market it just a few years.

May 17, 2014 at 12:30PM

Despite recent squabbles with various state auto dealer associations, the U.S. remains by far the top market for luxury electric-car maker Tesla Motors Inc. (NASDAQ:TSLA). However, there have been plenty of warning signs in the last six months or so that U.S. demand for the Model S sedan has peaked.

Any diversification of sales would be a good thing for Tesla at this point. Fortunately, China is poised to come to the rescue. Tesla delivered its first Model S sedans in China last month, and it is positioned for massive growth there in the next few years.

Tesla Model S

Tesla delivered its first Model S sedan in China last month. Photo: Tesla Motors

In fact, China is likely to overtake the U.S. as Tesla's largest market by the end of the decade -- or sooner! Tesla will be just a few years behind other major global automakers, like General Motors (NYSE:GM), that are seeing sales volumes in China overtake sales in their home markets.

Support from the government
There are two key forces that should propel Tesla's growth in China. The first is smog. Smog has become a very serious public health problem in Beijing and many other urban areas in China. As a result, the Chinese government is very interested in promoting electric-vehicle technology.

Some local governments are also hopping on the electric-vehicle bandwagon. In Shanghai, where license plates can cost more than $10,000 in public auctions -- due to strict limits designed to alleviate congestion -- the local government is giving free license plates to Tesla Model S buyers. This creates great value for Tesla customers at no cost to the company.




GM is just following general industry practice with this pricing scheme. However, Tesla decided to break the mold by selling the Model S in China at a price where it would earn the same margin as it would for a U.S. sale -- increasing the price only enough to compensate for customs duties, taxes, and transit costs.

The result, according to Tesla (link opens a PDF), is that "in China the Model S is priced comparable to a mid-sized premium vehicle, instead of a large luxury vehicle." Considering all of the other benefits of having an electric car, this should allow Tesla to capture a higher proportion of the luxury market in China than it has in the U.S. Most importantly, China is the top luxury car market in the world.

Getting there
According to Tesla executives, the company has already seen strong initial demand for the Model S in China. In fact, on the company's recent conference call, Tesla CEO and founder Elon Musk told analysts that if the company tried to fully meet Chinese demand for the Model S this year, it would starve the rest of the world. (In other words, there would be hardly any Teslas left for customers in other countries.)

Tesla Cars Charging

Tesla needs to build a big Supercharger network in China to boost sales. Photo: Tesla Motors

Still, for Tesla to reach its full potential in China, it will need to vastly expand its infrastructure there -- which is exactly what it's doing. On several occasions recently, Musk has stated that he is urging the Tesla China group to spend money as fast as possible without wasting it. This primarily entails creating a broad network of Supercharger facilities and service centers.

Foolish final thoughts
There is obviously no guarantee that Tesla will be able to follow through on its potential in the Chinese market. However, the government's push for more clean vehicle technology and Tesla's lower markups in China compared to other luxury automakers create an enormous amount of growth potential for Tesla in China.

Between Tesla's likely growth in China, the arrival next year of its Model X crossover (which fits well with the growing popularity of crossovers and SUVs in China), and the potential for a mass-market vehicle later in the decade, Tesla has plenty of growth catalysts ahead. If Tesla stock continues to pull back this year, it will be worth a look for long-term investors.

Will this stock be your next multi-bagger?
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends General Motors and Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers