U.S. automaker Tesla has raised its game in China's highly competitive electric vehicle market, vowing to deliver its first batch of Shanghai-made cars in January, just a year after breaking ground on its first China plant.
The debut of Tesla's entry-level sedan is expected to pose an immediate challenge to local players such as Nio and Xpeng Motors, as many were forced to raise prices after Beijing slashed subsidies for electric vehicles.
The made-in-China Tesla Model 3 vehicles largely follow the designs of those made in the U.S., except for a Chinese nameplate attached to the tail. Tesla claimed it shipped all the auto parts from overseas suppliers to assemble them in Shanghai.
The Shanghai-produced Model 3s are offered at 355,800 yuan ($50,546), about 20% less than the cheapest imported Tesla cars currently on sale in China. The announced price also further closed the gap between Tesla's vehicles and Chinese brands. The company will continue to sell imported Model 3 vehicles with higher configurations in China.
Analysts think the more affordable China-made Tesla will help the U.S. company poach younger customers from local EV makers thanks to its brand appeal.
"Tesla is a very famous and hot brand in China," said Alan Kang, senior analyst at Shanghai-based consultancy LMC Automotive. "It is not only an EV car brand to consumers, but also a brand of high-technology image."
Kang said the initial sales success of Tesla's imported Model 3 vehicles in China demonstrated the company's appeal to the country's tech-savvy customers, as the automaker's design and technology still run ahead of its followers. Tesla CEO Elon Musk's personal influence added to the brand's attractiveness, he said.
Tesla more than doubled its sales in China to 32,000 units as of September, compared with the same period last year. Volkswagen Group is the only foreign company to sell more electric vehicles than Tesla during the period.
Kang expects local maker Nio, which also positions itself as a high-end EV brand, to face the biggest challenge from Tesla's new offering, while lower-end brand Xpeng would be less affected.
Tesla's real rivals in China, he said, will be the premium foreign car brands, which have started rolling out their own EV models.
"You don't know if those companies will still be around in a few years"prospective Model 3 buyer on Tesla's Chinese rivals
Starting this year, Beijing requires automakers operating in China to dedicate at least 10% of their overall production to electric vehicles, or purchase equivalent credits from other makers. Established automakers such as Mercedes-Benz and BMW plan to roll out their first electric vehicles in the coming years.
At the annual Guangzhou International Automobile Exhibition on Friday, the sapphire blue Tesla Model 3 drew a crowd of spectators. It was the first time the Silicon Valley-based automaker let customers take a close look at its China-produced vehicles. Dozens of the models also arrived at its retail outlets for review across the country on the same day.
A spokesperson at Tesla China said buyers can expect their car to be delivered by the Chinese Lunar New Year, which falls in January, if they order now.
The news immediately attracted the attention of Tim Li, a 35-year-old Guangzhou resident who is looking to buy his first car.
The hospitality industry worker previously planned to settle for a local EV brand, on a budget of 20,000 to 30,000 yuan. But he is having second thoughts, as a Tesla no longer seems out of reach.
"Tesla's status [in electric vehicles] is equivalent to iPhone in the smartphone industry," Li said, adding that the Silicon Valley brand has an apparent advantage over local ones.
Though his test drives with Chinese brands were "better than expected," Li still has concerns over the stability of the vehicles and after-sale services, as some companies already face financial troubles.
Nio's stock price in the U.S. plunged by more than half in recent weeks after the company reported a larger-than-expected loss and plans for job reductions. But Xpeng raised a fresh $400 million this month from investors including Chinese smartphone maker Xiaomi.
The momentum of Tesla, which also faces frequent financial pressure, seems formidable in China. Musk's company built its first China plant, known as the Shanghai Gigafactory, in just 10 months, and secured mass production approval from Chinese authorities this month.
Tesla forecasts that about 3,000 Model 3s will roll off assembly lines in China every week, saving 65% in costs compared with those made at U.S. plants.
However, some Chinese consumers raise eyebrows over the perceived quality of a locally made Tesla.
Ben Li, a 33-year-old interior designer, still ordered an imported Tesla Model 3 despite it costing him 80,000 yuan more. The high-end version features a longer range, better driving system and, most importantly, American craftsmanship.
"It's more about the confidence in the U.S. industrial capability. While China is growing fast, there is still considerable gap," the white-collar worker said. "Besides, there isn't a big difference in prices if I pay in installments."