Presents

Report for Tesla Motors:

Internationalization to China

By:
Marcell handoko (marcell.handoko@gmail.com)
Michael Stefanus (michlstfns@gmail.com)
Sacarissa Salim (sacarissa_salim@yahoo.co.id)

Prepared for

EXECUTIVE SUMMARY

TERM OF REFERENCES
About Tesla
Established on July 1 2003,1 as a respected innovative company
worldwide, Tesla Motors designs and sells high performance, super1 http://www.bidnessetc.com/company/tsla/

efficient electric cars positioned as futuristic luxury EV car for

consumer in affluent class. Tesla motors cars join style, acceleration,
and handling with advance technologies that make them the quickest
and the most energy-efficient cars on planet. Currently, Tesla has
several models which are Tesla Roadster, Tesla Model S, Tesla Model X,
and developing Tesla Gen III. To support its electric cars, Tesla is
developing its own charging stations, especially supercharging stations
which allowed consumer to charge their car only for 1 hour.
For the long term, Teslas mission is to accelerate the advent of
sustainable transport by bringing compelling mass market electric
cars to market as soon as possible.
Problem

In this case, Tesla needs to assess Chinas EV market to continue its

internationalization strategy. However, Tesla needs to pay attention to the
timing,
learning
experiences
from
another
internationalization
experiences, and unknown factors that company in China is confronted to
formulate the best entry strategy to China.

ISSUES DISCUSSION & SOLUTIONS

Time to enter China
The issue
As China market is huge and signaling opportunities, Tesla wanted to
enter the market. However, many factors are needed to be considered
before taking a decision. Was the time right for Tesla to enter china?
Suitability assessment
Before we answer the question, we have assessed the market condition
with Porters five forces analysis (see appendices 1) which will be
explained in the four perspectives:
1.
Industry potential
Currently, Chinas automotive sector grew at compound average
growth rate of 24 percent between 2005 and 2011 and, in 2010,
overtook the United State as the largest-single-country, new-car
market. This growth is forecasted to grow in a slower pace (8% a

year) between 2011 and 2020 but still very fast by developed world
standard.
EVs market in Chinas automotive industry offers big opportunities.
Since China had been suffering from severe air pollution, Chinese
government has encouraged EV purchase to reduce emissions. This
make Chinese government give massive support and incentive for
both company and users for the growth of this industry.
2

2.
Infrastructure Analysis
China infrastructure is currently not an EV-friendly environment yet;
especially in their source of power and charging stations. In China,
most people lived in apartments with limited parking space, which
they often shared with others. Chinese customers were going to
experience difficulty charging EVs which would result in less incentive
to purchase EV. A similar issue existed for supercharger stations: there
were not enough of them, despite high population density in some
regions.
3.
Consumer readiness
Target market for Tesla in China which is affluent class (___% in China)
is considerably ready to accept Tesla. They tend to have high social
recognition, preferred well-known manufacturers (western brand) and
tend to want show off the latest technology.
On the other hand, customers with lower incomes, who were also
concerned about environmental issues, tended to choose the Asian
brands as the reasons has been previously addressed. The market was
already competitive and Tesla had no reputation amongst such
players.
In consumers perspective, Tesla and others EV player is facing
common challenge towards consumers reluctance due to perceived
problems with safety, reliability (distance it can go) and access to
charging facilities. However, as government policies support EV usage,
sooner or later consumer in China will have to get used to the EV.
4.
Competitor analysis
From the competition mapping (see appendices ___), we could see that
luxury EV car is still not filled by any competitors which could give
Tesla opportunities. However, advantages from government which is
given to local manufacture could give the competitive advantage in
term of price.
Acceptability assessment
2 http://www.chinabusinessreview.com/opportunities-and-challenges-in-chinaselectric-vehicle-market/

Despite all the risks and challenge (market condition) that Tesla is facing
in China, giving up a market as big as China is not wise simply because
these two considerations
1.
Early mover advantages
Since EV industry in China itself is still lack of infrastructure of
charging station, going in to the market earlier to build network for its
charging stations around the countries will give Tesla huge advantage
in the future. Moreover, it is important for Tesla to familiarized Chinas
customer with its brand before other EV come in deeper to grab the
market.
2.
Teslas long term vision & strategy
China is well known as its low cost production around the globe. It is
aligned with Teslas mission to enter and dominate mass market for
electric cars as soon as possible. Moreover, as China is a well-known
and one of the most developed countries in Asia, China has big
possibilities to be Teslas center for Asia expansion.
Conclusion & Recommendation
Based on the assessments above, we conclude that it was the right time
for Tesla to enter the market. Also, we recommend Tesla to enter the
market as soon as possible to join the game in EVs industry in China since
it is beneficial in short term and long term.

Experiences from other internationalization

The issue
Tesla has entered countries as part of its internationalization strategy.
There are some lessons learnt from those experiences. Therefore in this
case, if Musk took tesla into China, what could he learn from the
experience Tesla had had elsewhere in order to make China a success?
Lesson Learnt & Recommendation for China Market
1.
From US success
Learnt from the markets success, Tesla could build showroom in public
and high visibility places, especially in places with high traffic of affluent
people such as high-end malls and 5 starts hotels in order to ensured
maximum exposure for the companys brand.
For infrastructure problems (charging stations), Tesla
building infrastructure especially superchargers and
options in China urban strategic places. Tesla can also
with mobile charger for mobile needs. This action
customers willingness to buy.

can focus on
battery swap
equip its cars
will increase

2.
From Singapores failure
In the case of Singapores failure, we can learn not to give over
promised to customers (PO gagal itu karena in terms of tax breaks has
4

been accepted). Moreover, to ensure products customization to adapt

with local preferences especially government standard is crucial factor
to success in China.
All of the implementation strategies in China will later be discussed in the
following section.

Factor of the Unknown confronted companies in China

The issue
As there are many factors are uncontrollable and unpredictable, they must
also be considered for Teslas strategy to enter Chinas market and to
prepare for the worst. Therefore, how could we deal with some of the
unknowns that confronted the company in china?
Assessment of Potential Issues
Based on our PESTLE analysis (appendices ___), the biggest potential
issues might come from government policy which is related to legal
problems,
copycat
of
products
technology
and
design,
administrative and legal problems, and some cultural difference
in doing business.
Recommendation
To handle the potential
recommendations, they are:

issues,

team

come

up

with

several

References:
http://www.businessinsider.com/the-five-biggest-practical-challenges-forforeign-smes-in-the-chinese-market-2010-12?IR=T&r=US&IR=T
http://globalriskinsights.com/2015/06/five-challenges-americancompanies-face-in-asia/
1.
Make good relationship with stakeholders
The importance of building strong relationships (guan xi) in business is
not a novel concept for western businesses. While in the other parts of
the world, you may be able broker a deal just through formal business
meetings; in China it is necessary to spend time getting to know your
Chinese counterparts outside the boardroom during tea sessions and
dinner banquets.However, for your company to succeed in China it is
important to spend time cultivating relationships with counterpart
businesses, government agencies, and trade organizations.
2.
Build international team
To avoid cultural problems in China, it is important to have an
international team in place which can bridge Chinese and western
cultural differences to develop procedures and work culture that is
suitable to Chinas business and cultural landscape.
Tentang yang copycat?

Entry strategy to China

The issue
To ensure success, Tesla must use the right entry strategy to China.
Therefore, what should the companys entry strategy consist of?
Kita certain tentang dia futurenya mau buat mass market, buat mass
market yg penting itu economic car. Harga listrik daripada harga bensin di
cina gmna?
Recommendation
Based on previous analysis, we proposed this entry strategy for Tesla to
China
1.

Entry strategy (pake teori)

As Tesla positioned current product as futuristic luxury EV cars, it is
wise for Tesla to target affluent class in China with the image of
different.

2.

Preparation
We found out there are some legal problems to enter China market
(Tesla branding used by Chinas businessman). First and foremost,
we have to finish the problem. Then, we also have to hire local
management team in order to cultivate Tesla business manner into
Chinese culture itself.

3.

Marketing Mix
Places
To enter the market, we recommend you to launch Tesla in big cities
in China. Build big showroom, build huge infrastructure (electrify the
countries). We recommend Tesla to launch its product in the biggest
China city, Beijing and Shanghai.
Product
For the entry strategy, we recommend for Tesla to keep its made in
USA label in its product rather than make partnership to local
manufactures (made in China). This will give more prestige to
Chinas affluent market and increase their willingness to buy.
However, Tesla needs to make some adjustments in term of
products with local preferences.
Also, to ensure success we recommend Tesla to ensure its value
chain (spare parts, service center, financing facilities, charging
stations, etc) to maximize its service to China market. Focusing on
charging stations, Tesla must build massive networks across the
countries to ensure its long term existence and service for
customers (partnering with shopping malls, parking lots, restaurants
and China Unicom retail outlets to place the stations)

Promotion
The focus of the promotions is to increase brand awareness and
build prestige feeling around China through many advertising,
automotive show, etc. Moreover, as an innovative product, we
recommend Tesla to build strong communities among Tesla users to
make it even more exclusive. Moreover, the promotions must
encourage trial by consumer in China so they could perceive value
on Teslas products.
Price
As our main target is the affluent market, the more expensive the
price is, the more prestige they will get. Of course, the high price
must also come with great services.

Appendices
Appendices 1 Competitiveness of Auto Industry in China
(Porters Five Forces)
Forces
Barriers to entry
(Tesla to Chinas
auto industry)
Moderate to high

Factor increasing
forces
Complex ways to buy
a new car in China
which even more
difficult for foreign
players (proving to
government that
consumer have
parking lot, then enter
lottery to get a
registration for the
cars) might be a
nuisance for Tesla in
China

Factor decreasing
forces
Governments
incentive for EVs
industry

China imposes
significant import
duties on cars
manufactured in other
countries
Low number of
charging stations and
7

home charging
facilities
High initial investment
Already consisted of
well-known car
manufacturers
(Mercedes-Benz,
Hyundai and Toyota;
as well as other Asian
brands, like Chery and
BYD)
Competition
(with another
energy efficient car
in China hybrid or
electric car)
Moderate

Chinas generous tax

break for clean energy
vehicles only applies
to local manufacturers
make local
manufacturers can be
more competitive in
terms of price towards
consumer

Small or even none

competitor in a high
performance electric
car class (different
niches)
Tesla has its wellknown reputation all
around the globe as an
innovative and high
tech
EV
cars
(Consumer will get
recognition
and
prestige to own Tesla
cars
with
high
technology)

In terms of luxury
sports car (in general),
Tesla is competing
with Jaguar, Porsche,
etc in China.

Buyer power
(consumer in China)
Low

Supplier power
(Human capital for
Tesla in China, for
example

Since the Teslas car is

in a luxury good line
up, the demand is
very inelastic so
consumers are
willingly to pay the
high price.
No similar class of car
like the Roadster so
there is no basis for
the consumer to
negotiate with
Prestige to work in
Tesla as it is known as
global and innovative
product encourage

management
teams, sales
people, managers)

people to work in Tesla

Moderates
Substitutes
(Hybrid or even
public
transportation in
the broad sense of
environmental
friendly transport)
High

Lots of cheaper
electric cars (but with
lower performance
trade-off)

In terms of an electric
sports car, there is no
substitutes

Buyers preferences in
conventional car
Relatively low
intention to use EV

Appendices 2 SWOT analysis for Tesla in China

Strength

Opportunity

The first mover of full electric

premium vehicle
Innovative and eco-friendly
product
Fastest and most-efficient
electric cars
Very high technology, difficult to
be copied by competitors
Good brand image
All In house manufacturing
Tesla has a patent for their
battery technology and drivetrain technology

There is only one percent sales

of EVs from whole auto industry
in China
Growing market
Increase of consumer and
government awareness of
environmental concern
Increase in oil and gas prices
Other companies are buying
electric vehicle technology from
Tesla
Tesla has just launched a new
model of Model X
Technology is continuously
evolving, enabling Tesla to
produce more affordable and
become more appealing to much
broader market
China market is the biggest auto
market in the world and
forecasted to be the biggest EV
consumer in 2030
Government has set 5-year plan
to put five million EVs on road by
2020.
Despite a slew of government policies in
2014 that supported charging
infrastructure, extended purchase
subsidies and tax breaks to consumers,
and outrightmandated the use of electric
vehicles by some government offices, the
number of electric cars on Chinas roads
remains limited.

Weakness
Niche market
Low Volume of sales
During big demand period,
cannot keep up with volume due
to untrained employees
All in house manufacturingcostly

Threat
Market is currently not ready
Infrastructure is not ready (lack
of charging station)
China market has preference to
buy local brand car

10

Appendices 3 Competitor Mapping Auto Industry in China

Roadster
Model S

Appendices 4 Forecasted EV Sales in China, US, Europe

11

Appendices 5 Chinas share of global car market

Appendices 6 Market volume growth of the electric vehicle

market in China

12

Appendices 7 Unknown factors for company in China (PESTLE

analysis)
Local minded government policy which caused
other company like BMW, Mercy, VW, etc to
have local partners for the long term
Strict
government
rules
about
China
customers data collection, might give Tesla
problem in terms of information trade and
companys growth.
Moreover, Chinese government could issue a
policy in EV or global firm at any time which
required the company in china to adapt.

Political factors

The less robust financial regulation system in

Asia presents corruption risks and legal
compliance issues for American companies
that must comply with the Foreign Corrupt
Practices Act. U.S. firms that try to enter or
grow within this specific environment struggle
and business-to-business contracts might not
comply with FCPA as bribery to hasten or ease
up processes may be involved from either
side. 3

China relations with the US can

challenges to American companies. 4
Economic factors

pose

Uncertainty of global economics might give

negative impact for purchasing power in
China. In short term, while Tesla is focusing on
the affluent class which relatively will not be

3 http://globalriskinsights.com/2015/06/five-challenges-american-companiesface-in-asia/
4 http://globalriskinsights.com/2015/06/five-challenges-american-companiesface-in-asia/

13

affected by the macroeconomics factors.

However, in the long term Tesla might face
problems in the mass market
As the market volatility in China is high, there
might be changes in consumer behavior in
China market.
Cultural misunderstandings arising from
miscommunication are one of the biggest
challenges which foreign companies face in
China. Although there are an increasing
number of Chinese people highly proficient in
English, it is uncommon to find someone who
understands the subtleties of the language
and possesses a strong enough understanding
of both Chinese and western culture to
navigate delicate business negotiations.
5

Social factors

Chinas cultural guan xi (relationship) also

might arise some expansion problem for Tesla
in China. The importance of building strong
relationships in business is not a novel concept
for
western
businesses.
However,
in
China,guanxi plays a far more important role
than it does in the West. While in the other
parts of the world, you may be able broker a
deal just through formal business meetings; in
China it is necessary to spend time getting to
know your Chinese counterparts outside the
boardroom during tea sessions and dinner
banquets.
There is always room for new advance
technology. Most well-known car manufacturer
is doing research in term of EV technology.
Technology factors

Legal factors

China is known as copycat nation, where there

is nothing that China couldnt build. There are
some issues where global company get
rigorous competitor with similar products.
The legal systems in nations such as China
and Malaysia heavily restrict the operations of
foreign companies. For example, intellectual

5 http://www.businessinsider.com/the-five-biggest-practical-challenges-forforeign-smes-in-the-chinese-market-2010-12?IR=T&r=US&IR=T

14

property protection is highly limited as

technology theft and counterfeiting products
are common in the region, and widely
accepted by the authorities.6

In
China,7
many
administrative
and
bureaucratic tasks that have been simplified in
the West can still be quite time-consuming.
Everything from opening a bank account, to
registering your company, to gaining product
approval, can drag on for months. The lack of
a strong rule of law and an inconsistent
application of regulations means that such
processes are not always designed for your
companys convenience.
In addition, many procedures that would be
handled electronically in the West require
reams of paperwork which need to be filled in
and stamped by hand. The time required to
complete these efforts can be unexpectedly
lengthy. We know of many foreign companies
that hire 1-2 full-time staffers in China, hoping
they will lead their marketing and sales efforts,
only to find that their employees spend more
than
half
of
their
time
completing
administrative tasks.

Yg kalo buka pabrik mending buat yg model untuk masive

Appendices 8 Lesson learnt from other internationalization
experience
No
.
1.

Experience and
Similarity in China
Implementation
Lesson learned
Market
in China
Tesla found a way to Tesla also needs to Tesla could build
connect
with
the interact
with showroom in public
consumer
by potential customer to and high visibility

6 http://globalriskinsights.com/2015/06/five-challenges-american-companiesface-in-asia/
7 http://www.businessinsider.com/the-five-biggest-practical-challenges-forforeign-smes-in-the-chinese-market-2010-12?IR=T&r=US&IR=T

15

2.

3.

positioned its new

showrooms in retail
venues
with
high
traffic and visibility.
This is very important
and critical for Tesla
to increase significant
exposure for Teslas
brand.
This
also
helped
Tesla
to
educate
consumers
on the benefits of EV.
US consumers doubt
the potential of Tesla
become primary form
of transportation due
to limitation of long
distance and their
power sources. Tesla
then
able
to
overcome
this
problem by providing
supercharger stations
and
swap battery
option in 2013
Tesla did not meet EV
requirements
in
Singapore
which
cause Tesla to not
receive
any
tax
breaks
and
make
Tesla too expensive
for market.

educate them before

they decide to buy or
not. As China is the
new market for Tesla,
exposure is highly
important.

places, especially in
places with high
traffic of affluent
people
such
as
high-end malls and
5 starts hotels.

Tesla as premium EV
targeted for higher
income
consumers
(affluent
class).
Those targets lived in
urban cities in China.
This
means
that
distance from one
place to another is
relatively closer than
sub-urban.

Tesla can focus on

building
infrastructure
especially
superchargers
in
China
urban
strategic
places.
Tesla can also equip
its cars with mobile
charger for mobile
needs.

Tax breaks in China is

given to EV local car
manufacture
only.
These causes Tesla,
which still importing
completely build up
(CBU) car to China,
to have a very high
price.

Tesla vision to bring

EV
into
mass
market
requires
Tesla to adjust price
to
middle
class
segment
(mass
segment), in order
to
make
Teslas
price
more
affordable for future
market. For long
term, in order to
lower price, Tesla
could
build
a
partnership
with
local manufacturing
(for mass market
model
car)
thus
give tax breaks for
Tesla
that
could

16

Tesla are unable to

meet demand in 2012
due
difficulties
in
training employee on
the hi-tech machines,
and
delay
from
supplier
4.

China is a very
potential
massive
market of its fast
growing
affluent
class (predicted to
increase
from
3
million in 2011 to 36
million
in
2020)
which
can
drive
massive demand in
the future.

reduced its selling

price to consumer.
Moreover,
assembling
cars
locally also reduced
import tax of a
completely build up
cars.
As we plan to build
partnership
with
local manufacturer,
its time for Tesla to
do
intensive
training
on
its
technology for its
employees,
especially in China
manufacturing
plants. Tesla also
needs to master its
supply
chain
planning in order to
meet rising demand
in the future.

17