Tesla’s publicity nightmare in China comes at crucial juncture

Beijing’s targeting of Tesla for the electric vehicle maker’s bungled handling of a high-profile customer protest has exposed a weakness in the US group’s China business as competition intensifies in the world’s largest car market.

Tesla has been plunged into a publicity crisis in the country after China’s state media accused the company of “being arrogant” in its approach to a spat with a customer who claimed that a malfunction caused her vehicle to crash.

The unwanted attention comes at a delicate time for Tesla, whose position as market leader in China is coming under pressure from local challengers, as traditional automakers, start-ups and technology groups flood a fast-growing segment that still only accounts for 5 per cent of the country’s vehicle sales.

The controversy began on the opening day of the Shanghai Auto Show last Monday, when a woman wearing a T-shirt emblazoned with the words “brake malfunction” climbed on top of a Tesla car and started demonstrating in front of crowds and media.

Tesla’s initial response that it would not compromise over “unreasonable” complaints drew a furious reaction from China’s state media, which accused the group of being “not sincere”. The State Administration for Market Supervision, China’s top regulatory body, said it was “deeply concerned” about the case.

Tesla’s China sales doubled to $6.6bn in 2020, making up a fifth of the group’s global total. Its success has been supported by the Chinese government, which allowed Tesla to become the first foreign carmaker to operate in the country without a local joint venture. With financing from state-backed lenders, the group was able to build its Shanghai Gigafactory in record time, allowing it to churn out locally-built cars.

“We can really think of China’s [electric vehicle] market history as being split into before Tesla and after Tesla,” said Michael Dunne, founder of ZoZo Go, a US-based consultancy. 

Tesla “ignited a genuine flood of interest in EVs from urban buyers” and ended an era when “99 per cent of Chinese electric cars were low-price, short-range, no-frills cars, with sales almost entirely incentivised by subsidies”, Dunne said.

But Tesla’s popularity in the world’s second-biggest economy, along with the global shift to electric vehicles, has also drawn attention to Beijing’s long-frustrated goal to create an internationally-recognised automotive brand despite generously subsiding the industry. “The Chinese Tesla, if you will, was not materialising,” said Ilaria Mazzocco, a senior research associate at MacroPolo, a think-tank.

The Chinese government wants a fifth of car sales in the country to be electric by 2025 and hoped that inviting Tesla into the country would spur more innovation among domestic players. “And they have succeeded,” Mazzocco said.

When things go bad with regulators, no one is advocating on behalf of Tesla aside from Tesla itself

Chinese rivals have responded with a host of locally-made models. They include US-listed Nio, Xpeng and Li Auto, as well as Zeekr, the high-end electric car brand of Geely, owner of Europe’s Volvo. Joining them are technology groups Huawei, Xiaomi and Baidu, which have partnered with traditional automakers.

So far none have come close to knocking Tesla off its perch. But the US group is now increasingly coming under the radar of Chinese authorities.

In March, some military compounds in Beijing banned Tesla owners from parking their vehicles inside the gated neighbourhoods that house personnel over fears the cars’ built-in cameras posed a security risk. Elon Musk, Tesla’s chief executive, denied the cameras could be used for spying.

The string of negative coverage has left analysts questioning whether the criticism reflects a broader shift in the Chinese government’s attitude towards Tesla.

Tesla’s 100 per cent ownership of its China operations has also proved to be a drawback in some ways. “The only thing tougher than having a partner in China is not having one,” said ZoZo Go’s Dunne. “When things go bad with regulators, no one is advocating on behalf of Tesla aside from Tesla itself.”

The quagmire of bad publicity for Tesla shows few signs of disappearing soon despite repeated climbdowns and public apologies by the group following the customer protest.

The company’s latest move has been to release car data related to the driver’s crash in February. The protester claims that her vehicle’s brakes failed, but the data shows she braked repeatedly in the half-hour before the crash and was travelling at nearly 40km above the speed limit.

The release has done little to defuse the situation. The customer has accused Tesla of tampering with the data while her husband said the company’s move was a violation of privacy rights.

Tesla did not respond to a request for comment on the matter.

“Tesla’s stance globally is that they build a world-class product and are going to be uncompromising in response to customer complaints,” added Dunne. “And what they are discovering is that this is the wrong formula for China.”