Range anxiety, or the fear of an insufficient electric charging network to support convenient long-distance travel in electric vehicles, is often cited as one of the major factors holding customers back from buying fully electric vehicles like Tesla's (NASDAQ:TSLA) Model S. While Tesla is rapidly addressing this issue in the United States and Europe with its fast-growing network of Superchargers, Tesla hasn't yet made a meaningful footprint in China. But one deal with China's second-largest wireless carrier shows just how quickly Tesla can ramp up charging in the country.
China Unicom's big move
Last week, China Unicom signed an agreement with Tesla that will allow the company to install charging stations for Tesla vehicles at hundreds of its retail locations in the country, Financial Times reported.
Two particular aspects of the deal jump out as surprising.
- The scale: Charging stations will be located at 400 China Unicom locations in 120 cities.
- The breakdown of costs: While FT implies that Tesla may pay for the installation of these charging points, China Unicom will fork over the costs for maintenance and electricity, FT says.
If more deals like this with other businesses are to follow, Tesla could bolster its charging network very quickly.
The two companies will also be partnering to build 20 of its supercharging stations, which FT noted are "faster than the others."
China Unicom already had a relationship with Tesla, providing Internet service for Tesla vehicles in the country.
Why Tesla needs to cater to China
Tesla has made it clear on a number of occasions that China is an important market for the company. In fact, in an interview with Bloomberg earlier this year, Tesla CEO Elon Musk even said that China could become the company's biggest market.
"I think it's really important. I think it could be as big as the U.S. market -- maybe bigger," Musk told Bloomberg. Notably, however, Musk made sure to hedge his bets: "I don't want to get overexcited about it."
The market for premium cars in China (or sales of cars under brands like Acura, Aston Martin, Audi, Bentley, BMW, etc.), has been growing at a rate of about 36% annually in the country between 2003 and 2012, according to McKinsey & Company. China, currently the second-largest premium car market, will overtake first-place U.S. by as early as 2016, McKinsey predicts.
Tesla to excel in China?
Entering the China Market in April, Tesla has a pricing advantage over most of its luxury peers. The current trend among auto manufacturers for pricing in China is to considerably mark up prices -- even beyond taxes, customs duties, and transportations costs. Tesla, however, is only marking up the price of its vehicles by the amount of the unavoidable fees.
Some luxury brands competing with Tesla in China are seeing negative publicity as the country's National Development and Reform Commission investigates motor pricing practices of Mercedes, BMW, and Audi. Meanwhile, Tesla's customer-first pricing policy has kept the company out of the mess.
Investors will look to Tesla's execution in China in the coming years as an outlet for the company's demand to hopefully continue exceeding production, even as Tesla ramps up production from a target of 1,000 vehicles per week by the end of this year to a goal of 2,000 vehicles per week by the end of 2015.
A robust charging network in the country could play a key role in garnering demand for Tesla's Model S and its upcoming Model X. Today, Tesla's map of Supercharger stations shows only 13 locations. While the non-Supercharger charging points that will be at most of the China Unicom stores likely wouldn't be included on this map, the scale of arrangements like this one still add considerable value to charging infrastructure available to Tesla owners.
Warren Buffett's worst auto nightmare (Hint: It's not Tesla)
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to ride this megatrend. Click here to access our exclusive report on this stock.
Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends BMW, Ford, and Tesla Motors. The Motley Fool owns shares of Ford and 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.