The list of countries where Tesla (NASDAQ:TSLA) is selling its Model S continues to grow. Tesla's latest market where the company will begin delivering the Model S -- Hong Kong -- makes 16 total regions where Tesla is now selling the luxury sedan. Importantly, an entrance into Hong Kong suggests Tesla is on track with its international rollout plans.
Yesterday morning, Tesla tweeted that the first right-hand-drive Model S vehicles are now coming to Hong Kong, showing pictures of some already there. Tesla was already delivering vehicles in China, but it hadn't started deliveries of the right-hand-drive version of the Model S to Hong Kong yet. Hong Kong is the second right-hand-drive market Tesla is readying to deliver vehicles in. The first was the U.K., followed by Australia.
While the expansion to Hong Kong isn't a surprise, it does suggest Tesla is on schedule. Tesla said in its fourth-quarter letter to shareholders that it would expand "gradually over the year starting this spring" to the United Kingdom, Japan, Hong Kong, and Australia. Then, in Tesla's first-quarter letter to shareholders, Tesla said, specifically, that it would have a presence in the United Kingdom, Japan, and Hong Kong all by "later this summer." With the planned U.K, and the seemingly earlier-than-expected expansion to Australia, and now Hong Kong, all selling Model S with several months of the summer left, Tesla appears to be on track with its international expansion plans.
This leaves Japan as a good candidate for Tesla's next market. Tesla's achievements in the important Japanese market will be closely watched, especially with the country's top auto manufacturers, and its government making big bets on fuel-cell cars.
Execution is paramount
Given Tesla's very forward-looking valuation, rapid execution on the company's plans is going to be crucial for Tesla to be able to live up to the market's expectations. Tesla's continued retail expansion, within the U.S. and abroad, enables the company to avoid spending money on advertising. Geographic penetration drives new orders, and demand is compounded by word-of-mouth marketing.
Tesla explained the effect on demand that occurs from entering new markets in its 2013 first-quarter letter to shareholders: "Importantly, we are seeing orders in a particular region increase proportionate to the number of deliveries, which means that customers are selling other customers on the car."
In Tesla's 2013 third-quarter letter to shareholders, Tesla mentioned this effect again: "Importantly, we are seeing orders in a particular region increase proportionate to the number of deliveries, which means that customers are selling other customers on the car."
Illustrating the power of Tesla's word-of-mouth marketing, Tesla explained in the Q3 2013 earnings call that, despite not even trying to create demand in China, there was what looked to be "pretty good initial demand in China," according to Tesla CFO Deepak Ahuja. And in Tesla's first-quarter 2014 letter to shareholders, Tesla CEO Elon Musk was still impressed with demand in the country.
Well I really don't think we've got any kind of demand challenge in China, in fact I was blown away by my visit to China at the level of interest and enthusiasm for Tesla and the amount of goodwill that I encountered from people at all levels, from the government, from people in industry and sort of consumers in general. And I'm really optimistic for how things will go there.
Expanding rapidly to keep demand well ahead of Tesla's ability to produce is a great strategy. The Model S has proven to elicit sufficient demand in any market the company enters. The biggest risk in expanding Tesla's addressable market of interested customers, therefore, is simply its execution. So it's good to see Tesla executing as planned with its international expansion.