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Electric cars in China

Tesla's quiet chip downgrade sparks anger in China

Owners of newly delivered Model 3 cars threaten legal action

Some Chinese Tesla Model 3 buyers are questioning whether the cars they received were equipped as the company promised. (Photo by Ken Kobayashi)

HONG KONG -- Buyers of Tesla's first batch of Shanghai-made Model 3 cars have threatened to take the U.S. electric vehicle maker to court, accusing it of substituting promised new control chips with an older version without notice.

The incident emerged last week after dozens of Chinese Tesla owners discovered that the part number printed on stickers on the control unit of their newly delivered cars did not match that in the Model 3's information sheets. It turned out that their cars contained the previous generation of the key control chip.

The new chip is 21 times faster than the previous version in processing graphics, according to an article published on Tesla's official WeChat last April. The company claimed that all Tesla vehicles made after April would be installed with the new chip.

The discovery sparked widespread anger among Chinese Tesla owners and internet users. Thousands of customers could be affected, analysts estimated. Some accused Tesla of "deceiving consumers," while others called for a boycott of the U.S. company.

"Tesla used whatever components that were available to make a quick profit. It's disgusting," one user said on Weibo, a microblogging website widely used in China.

"What if we did not find out? Tesla, you have failed to live up to the expectation of Chinese people and government," another user said.

Tesla explained in a statement issued on Tuesday on Weibo that the downgrading of the autopilot chip was due to disruptions in its supply chain as a result of the coronavirus outbreak. It said it would provide free upgrades from the old chips once its production capacity has recovered.

"We are deeply sorry for the confusions we have caused to some Tesla owners," it said, adding that it did not mean to mislead customers but wanted to complete order deliveries as soon as it could. It added that there was "almost no difference" in driving experience and user safety for the standard Model 3.

After the Nikkei Asian Review article was published, Tesla founder Elon Musk addressed the issue in a Twitter post that risked creating more confusion for Chinese buyers. "Oddly, those who complained didn't actually order FSD," the tweet says. "Perhaps they weren't aware that the computer is upgraded for free if the FSD option is ordered even after delivery."

FSD, or full self-driving, refers to a premium function that would cost about $8,000 more than a standard Model 3 car.

Musk's tweet appears at odds with a statement from Tesla in China offering to upgrade the chip to the latest version at no cost, in China, even if the car does not have FSD.

Shawn Shen, a Tesla owner in the eastern Chinese city of Suzhou believes Musk was not aware of the situation.

"You may not know that in China the checklist for environmental protection of Model 3 states the vehicle uses HW3.0 chip," he replied to Musk on Twitter. "But the fact that we only got HW2.5 chip may have already broken the law of China. You may want to check with your senior management in China."

Tesla had just started delivering its first batch of Model 3 electric cars made in its $2 billion Shanghai Gigafactory 3. Analysts have pinned high hopes on sales of the made-in-China vehicles, especially after Tesla cut the price of the model by 9% during the shopping season ahead of Lunar New Year at the end of January.

Despite Tesla's apology, some owners said its response was "arrogant" and "insincere" and that they planned to demand triple compensation in a proposed legal challenge to Tesla if the China Consumers' Association fails to resolve their complaints.

Dozens of Tesla owners have formed a consumer rights protection group online and have already filed complaints to the consumer association.

"I decided to buy a Tesla because it has better self-driving computing technology than its peers," said Musk Xu in the eastern Chinese province of Jiangsu.

"But Tesla replaced the chips without telling customers. It has already constituted fraud in our opinion," said Xu, a member of the Tesla consumer rights group.

The 37-year-old said he was a fan of Musk but was now disappointed with the company. He said the group of Tesla owners have already hired a lawyer and drafted a legal complaint to submit to court. "Tesla must pay for its behavior," he said.

Other owners are seeking compensation without going through legal means.

Shen told NAR he had discovered the mismatch after he found that his newly delivered Model 3 was not able to detect traffic cones, a feature that he had expected of the new Tesla car which is meant to have enhanced image processing capabilities.

"When I called Tesla after-service hotline on Feb. 28, the employee said they have never promised to use the newest (control) chip," Shen said.

But according to screenshots of message exchanges between customers and Tesla sales representatives seen by Nikkei, the company had told some that the newest chip would be installed in all Model 3 cars made in China. "I am asking Tesla to offer me an additional full-autonomous driving function in compensation," Shen said.

A Tesla public relations representative did not respond to Nikkei's request for comment.

Despite rising anger among Tesla car owners, analysts do not expect a major blow to Tesla's sales.

"For the arrogant Tesla, it's not the first time it had such an incident," said Yang Yongping, vice president of research firm EO Co. "The incident will most likely fizzle out, thanks to Tesla's brand premium and remedy measures."

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