Tesla Motors, Inc. Faces New and Recurring Headaches in China

Tesla Motors has much potential in the world's largest automotive market, but it also faces many hurdles and headaches in China, as well.

Jul 8, 2014 at 3:00PM

The Dow Jones Industrial Average (DJINDICES:^DJI) has lost more than 100 points near the end of today's trading session as second-quarter earnings season approaches. According to Reuters, roughly 60% of stocks trading on the NYSE have dropped, and nearly 75% of Nasdaq-listed companies are down.

Despite the market's treading water early this week, investors should keep in mind that the Dow recently broke through 17,000 for the first time ever and that economic data is expected to show stronger growth in the second quarter. So long as consistent growth is expected and achieved, the stock market remains the best option for long-term investors.

With that in mind, here are a couple of headlines in the automotive industry today.

Tesla Motors (NASDAQ:TSLA) is receiving a crash course in how difficult doing business in China can be. Tesla believed its trademark infringement conflict with Chinese businessman Zhan Baosheng had been resolved, removing one barrier of entry to the world's largest automotive market.

Apparently, that's not the case, and Zhan is taking the Palo Alto-based automaker to court and demanding the company stop all sales and marketing activities, as well as pay him $3.9 million in compensation.

This is just the latest in a long list of trademark problems foreign companies have faced in China. Even Apple paid $60 million for the rights to use the iPad trademark in China, though that amount is laughable for the iPhone maker. Likewise, Tesla can easily afford the $3.9 million demanded by Zhan, but the situation underlines a bigger problem: the difficulty of doing business in China. This will prove a constant threat as Tesla ramps up deliveries in what it expects will be its largest market for Model S deliveries as soon as next year.


Tesla charging station. Source: Tesla Motors

In other China-related news, Beijing is reportedly planning to install as many as 10,000 public charging stations by 2017, according to Chinese news service Caixin Online. Unfortunately for those Tesla investors hoping this could be the start of a collaboration to build out Tesla supercharger infrastructure, it isn't: Those public charging stations aren't reported to be compatible with Tesla vehicles. That's more than frustrating, especially considering that Tesla just released  its patents in an attempt to avoid scenarios like this.

In broader automotive-industry news, automakers have recalled more vehicles in the United States than in any other year on record -- with six months remaining on the calendar. The National Highway Traffic Safety Administration has tallied roughly 37.5 million vehicles recalled this year, which has already crushed the previous record of 30.8 million set in 2004. 

It's been a downward spiral for the industry in terms of recalls, which General Motors (NYSE:GM) kicked off this year with a tragic ignition-switch recall that revealed remarkable corporate ignorance starting as long as a decade ago. On top of that, Japanese automakers have been dealing with faulty air-bag problems from a supplier, Takata Corp.

Despite the recalls, the U.S. auto industry is continuing its sales rebound and recently posted two of the best months, in terms of seasonally adjusted annual rate of vehicles sold, since the recession wrecked vehicle sales roughly six years ago. 

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Daniel Miller has no position in any stocks mentioned. The Motley Fool recommends 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.

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