Tesla Motors' (NASDAQ:TSLA) outspoken CEO, Elon Musk, has never been shy about the importance of the Chinese market to the electric-car maker's long-term success. The California-based company delivered its first Model S cars in China last April. At the time, Tesla's management was confident that China would become one of its largest markets within just a few years.
In an interview with Bloomberg last year, Musk said Tesla's sales in China might trump its U.S. sales as early as 2015. Unfortunately, that seems highly unlikely at this point. Not even a year has passed since Tesla Motors first entered the Chinese market, and the company is already cutting jobs in the region. While a spokesman for Tesla Motors wouldn't confirm how many jobs were getting the ax, a Chinese newspaper alleged Tesla would reduce its staff there by as much as 30%, according to Bloomberg.
How did this happen?
If you ask Elon Musk what went wrong, he chalks it up to misperceptions about charging concerns in the country. However, aside from weak sales of Tesla's EVs, China's electric vehicle ambitions are actually on a roll lately. In December 2014, for example, China sold 27,000 passenger and commercial EVs -- outpacing sales of EVs in the United States during the same period.
Nevertheless, Musk was quick to address the China concerns during the company's fourth-quarter and fiscal 2014 earnings call last month. On the call, he said that worries over Tesla's business in China were overblown. Musk even went as far as to say, "I am confident that by the end of this year, we will be in really good shape in China."
Also on the call, Musk said the company rolled out some important software updates to its cars in China, which should help improve the customer experience going forward. These included the installment of maps and directions, which were previously missing from the vehicles in that market.
Patience is key
Shareholders need to understand that Tesla is still in the early stages of its rollout in China. The electric-car maker is in the process of installing Superchargers throughout Asia, which should help fuel adoption as consumers become more comfortable with the charging infrastructure there. In fact, as of Q3 of fiscal 2014, Tesla had 23 Supercharging stations in 10 cities in China, as well as a growing number of "destination-charging stations at prominent hotels, malls and commercial buildings. This compares to 192 Supercharging stations located throughout North America today.
Tesla's decision to invest hundreds of millions of dollars into charging infrastructure in China should help incentivize Chinese drivers to buy Tesla cars down the road. China may represent a tiny percentage of Tesla Motors' sales right now, but investors should give the company more time to gain a footing in the foreign market before sounding the alarm. After all, Tesla's newly opened Shenzhen location in China is now one of the company's highest-grossing stores worldwide.
The bottom line here is that China is not yet a significant market for Tesla, but that doesn't mean the U.S. carmaker can't thrive in the region down the road. Shareholders should certainly keep an eye on Tesla's operations in China going forward, but at this point, it is too early to worry.