Tesla’s Musk: Ripping Off Customers Isn’t Good Strategy

Tesla’s (NASDAQ:TSLA) recently publicized decision to offer the Model S sedan in China for around the same price as the equivalent American model — with the added taxes and transport fees — may lead to great things in the world’s largest car market, and CEO Elon Musk is naturally quite upbeat about the car’s prospects there.

After China’s abundant added tax for imported vehicles, and the $3,600 transportation fee, Tesla’s 85 kWh — the more potent of the two battery pack options — Model S will sell in China for about $121,000, or 734,000 yuan. While it seems like a lot, Tesla notes that it could have charged much more, but it was taking a risk to make the Tesla as affordable as possible in a country that hasn’t historically been very welcoming of electric vehicles.

Musk isn’t letting China’s fuzzy alternative fuel history dictate the chances for the Model S, though. For Tesla, “it could be as big as the U.S. market, maybe bigger. I don’t want to get overexcited about it,” Musk told Bloomberg on Wednesday. “Even without building there locally, it’s always going to be the second-biggest market after the U.S.”

Provided that Tesla’s entry into China goes over rather smoothly, Musk believes that Model S shipments to China can match U.S. sales by 2015. “It’s not my firm prediction — it’s more like a low-fidelity guess,” he said, hedging his statement. Still, Musk has proven that betting against his “guesses” and statements can be costly.

Tesla Model S

Tesla moved over 21,000 Model S vehicles for 2013, the majority of which were in the U.S., with a handful making their way to Europe. For the fourth-quarter of last year, Tesla’s sales came in at about 20 percent more than the company guided for. Bloomberg reports that had Tesla followed the industry blueprints for selling its vehicles, it could have charged more than $160,000 for the car. Then again, Tesla is not one to do things the conventional way.

“They’re basically calling us huge idiots for not ripping off customers in China.” Musk said. “I don’t think ripping off customers is a good long-term strategy.” John Zeng, a Shanghai-based managing director for LMC Automotive, agreed that Tesla’s strategy was the way to go. “It’s a good price,” he said of the Model S. “This should attract premium customers to try this product, especially in big cities.”

However, Tesla isn’t planning on dealing with the high tax rates on imported cars — some 25 percent in some cases — forever. Unfortunately, the only way to circumvent the hefty tariffs would be for Tesla to produce the units within the country, which Musk says will eventually happen. “Long-term there’s no question we’ll have a factory in China,” he said. “There is an argument for having that be our first major factory outside the U.S.”

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