Does China dream of electric wheels? Tesla Motors (NASDAQ:TSLA) must soon face the answer to that question. The company's success -- and its stock price -- hinges on sales growth in China. This Fool proposes that Tesla could win big because its value proposition invokes modern China's dream.
Chinese Dream, electrified
The Chinese Dream promises a better life for China's population of 1.35 billion. Promoted by Chinese President Xi Jinping, the Chinese Dream parallels the American Dream of the 1950s in many respects: It entails material prosperity and a better life for one's children.
Yet given China's 21st century challenges, the Chinese Dream includes sustainability. The New York Times and The Guardian have popularized the "China Dream" concept, which requires fixing China's vast environmental woes. And China's citizens are demanding sustainability: since 1996, the number of mass protests about environmental issues in China has grown 29% per year.
Tesla's svelte electric-powered Model S vehicle combines both aspects of China's Dream: material luxury and sustainability. With that value proposition, Tesla will challenge competitors like Volkswagen's (NASDAQOTH:VWAGY) Audi and BMW (NASDAQOTH:BAMXF) as China's salient luxury automobile status symbol. China's wealthy class will buy Teslas not to get from point A to point B, but because Tesla embodies a dream.
Once China's rich bite on Tesla's electric lure, the nation's less wealthy consumers may follow once Tesla releases a cheaper model. That's why Tesla was smart to list its Model S at the same price in China that it sells for in America. While China's rich will not feel the pinch of a few hundred thousand yuan's difference in price, the move received applause across China's social networks and won many Chinese consumers' respect for Tesla.
Such consumer respect will matter for Tesla's bottom line soon because the company is already thinking past its rich early adopters and moving toward courting China's dreaming masses. With the slated introduction of a cheaper model within about four years, Tesla's primed to penetrate the Chinese auto market with a branding strategy distinct from its luxury rivals: sell cars that combine social status and sustainability, all at a price affordable by a broader base of Chinese consumers.
Investors should also keep in mind the potential downside of Tesla's China pricing parity. Tesla may risk diluting its premium brand status, unlike luxury competitors Audi and BMW. Tesla could also be forgoing lofty profit margins, considering that China's rich certainly would pay higher prices.
Competing for China's Dream
Although Tesla blends China's desires for luxury and sustainability into its vehicles, the carmaker faces serious competition. Namely, Audi and BMW are hot sellers in China's luxury auto market: As of last year, they were China's No. 1 and No. 2 most desired luxury car brands, respectively.
What's more, car blogger enthusiasts recently spotted a BMW 530Le plug-in hybrid made for China. When and if BMW and Audi compete seriously with Tesla for the luxury electric-car market, it may erode Tesla's sustainability advantage.
If China's Dream mirrors the American Dream, Chinese consumers pressured to "keep up with the Joneses" may eschew Tesla to buy what their upper-class peers already drive: Audi and BMW. No doubt, Tesla must fight hard to gain ground within the saturated Chinese luxury car industry, but its fair pricing policy and inherent sustainability may present dreamy selling points for many Chinese consumers.