What Is Tesla’s Play in China?

tesla model s

In every report praising the electric cars of Tesla Motors (NASDAQ:TSLA), no one ever remarks about how affordable they are. The cost of owning a luxurious electric ride like the Model S nears $70,000, all told. For this reason, the announcement Tesla was headed to China was baffling. After the duties and taxes imported cars would face, what could Tesla’s play in China possibly be?

The World’s Biggest Auto Market 

As for why Tesla would want to make hay in China, the answer is obvious: the world’s largest auto market cannot be ignored by any serious industry player, EV or not. Yet since timing is everything, and few people anywhere can afford a Tesla, the type of price hike necessary to import a Model S to China would cause heavy sticker shock. According to Forbes, the possibility of the car’s price doubling is real.

The World’s Biggest Luxury Market 

Skeptics who suggest no consumer in China would pay $130,000 (or more) for an electric car have an obvious point, yet industry insiders say they see a path to success — namely, Tesla cars becoming the latest status symbol. Brannan Auto Engineering’s Charlie Paglee told the San Jose Mercury News the view from Shanghai tells a different story than the knee-jerk reaction of auto industry analysts.“Chinese customers will buy the Tesla to show off their wealth,” Paglee told the Mercury News, saying love of the environment is a close second on the theoretical priority list of a Tesla buyer. Since more luxury products are sold in China than anywhere else in the world, the country’s wealthiest individuals may look to one-up neighbors and friends by cruising down the street in a silent Model S. The premise in convincing, yet the main benefit of owning an EV has to be considered as well.

The World’s Worst Air Quality

Air pollution is notoriously bad in China, giving the electric vehicle industry clear growth potential. The Chinese government has offered huge subsidies for car buyers who opt for electric vehicles, yet those benefits are directed at domestic automaker products. Foreign brands considered superior by Chinese consumers are far more attractive, but consumers must pay the premium. Nonetheless, wanting to drive a car that doesn’t burn gasoline and looks beautiful will push car buyers toward Tesla.

The World’s Biggest Producer of Knockoffs 

Does Tesla face risks other than few people buying its cars? Of course, says Theodore O’Neill of Litchfield Hills Research. O’Neill told the Mercury News that he didn’t see sales moving for Tesla in China, but he did see the potential for a budget version coming — the next luxury knockoff — were Tesla to show off its cars throughout the country.

According to a blog from analysts at Zacks.com, the setting for Tesla’s first showroom will be as green as its cars.

The Parkview Green Mall in Beijing will host Tesla’s first China showroom, with 8,000 square feet of space to wow potential buyers. The size is about triple that of the average U.S. showroom, and will be the first mixed-use commercial undertaking to get the LEED Platinum designation for its green specs, the Mercury News reports.

For now, Tesla is cruising straight ahead with its plans to enter the Chinese market. More details are likely to emerge in the coming months, but the high number of luxury vehicles sold in the world’s biggest market would indicate customers are waiting in China. Whether the number of buyers can justify Tesla’s investment is unknown, but the EV maker has made a habit of exceeding expectations.

Don’t Miss: 8 Highest-Ranking Sedans From the Last Two Decades.

More from The Cheat Sheet