It's no secret that electric-car maker Tesla Motors (TSLA +0.07%) has struggled to gain traction in China. CEO Elon Musk said in a interview earlier this year that fourth-quarter sales in China were "a lot weaker than expected," citing its own public relations missteps in the country as a key reason for the troubles. But even three months after this bad quarter, Tesla apparently still has excessive inventory in the market.
Here's what you need to know about Tesla's excess inventory in China and other new details on the company's position and plans in the important auto market.
Model S. As Tesla's sole vehicle, nearly all of the company's business results hinge on the success of the Model S. Image source: Tesla Motors.
More details emerge on Tesla's slow progress in China
"China is the only place on Earth that we have excess inventory. We are essentially selling cars that speculators ordered but we are not able to take delivery on," Musk told China news agency Xinhua on Friday.
Half jokingly, Musk called the company's excess inventory in China "speculation hangover." Scalpers had driven up orders for Model S artificially high in an attempt to get ahead of a potentially long wait list. And the scalpers who were unable to find buyers were not able to take delivery.
To address concerns about charging vehicles in China and hopefully spur demand for Model S, Tesla is expanding the number of Supercharger and Destination Charger stations rapidly in the nation. The company's Superchargers, which charge up to 120 kilowatts, now number over 55 in the region. This is in addition to the hundreds of Destination Charger locations.
The company also recently began providing adapters that allow its customers to charge their Tesla vehicles anywhere free of charge.
Tesla CEO Elon Musk. Image source: Tesla Motors.
Musk said in a press conference call earlier this month that the company is seeing some "steady improvements in China." This sentiment mirrors Musk's comment in January that the company was seeing "an uptick in our sales in China" after its bad quarter. Musk also confirmed with Xinhua that sales in China have slowly but steadily increased in the past three months.
China is crucial to Tesla's success
As it invests heavily in charging infrastructure in China, it's clearer than ever Tesla truly believes the market will eventually be a boon for the company. But the more dollars Tesla sinks there, the more important it will be that it eventually pays off.
Despite these risks, Musk remains bullish about China over the long haul.
"It is clear that we need to think of China in a very long-term way. We need to steadily boost the confidence of the Chinese consumers," he told Xinhua.
Musk told Xinhua that Tesla intends to "establish both local production and local engineering in China," with localization possible in three years. The timing, he explained, would coincide with its Fremont, Calif., factory reaching full capacity.
While Tesla might not need China sales to pick up meaningfully in 2015 for the company to meet its guidance, the company will likely depend on the country over the long haul to realize its ambitions to sell 500,000 cars per year by 2020 and millions every year by 2025 -- up from guidance for just 55,000 vehicles in 2015.
