特斯拉在中国起飞

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When you climb into a Tesla (tsla, +1.94%) as a first-time passenger, drivers turn giddy at the chance for show-and-tell—especially in China, where Vanessa Zhu is playing host on this sunny spring day in Beijing.

“It’s huge, isn’t it?” she says, pressing the double-size, iPad-like control screen in the center console until the stereo blasts Adele’s “Send My Love.” Then comes the ceremonial closing of the gull-wing doors on Zhu’s Model X. We peer through an expansive glass roof. Zhu, the assistant to the chairman of a major marketing agency, likes SUVs for their safety on China’s chaotic roads—she upgraded from a BMW X5. One of the first Model X owners in China, Zhu paid a deposit before Tesla had even calculated how much a deposit should be.

“Now put your head back against the seat,” she advises.

The two-lane road we’re on is missing traffic lines, not to mention levelness, but as a section clears ahead, Vanessa floors it. We whir past a small black Hyundai so fast that the car seems to turn stationary. For a second, driver and passenger feel the same head rush. Then Vanessa slams on the brakes to respect a stop sign, chuckles, and changes Adele songs.

The sight of Teslas whizzing down roads in China’s biggest cities is becoming as common as—well, the sight of Teslas whizzing down roads in Silicon Valley.

In 2016, Tesla tripled its sales in China over the previous year’s, to 10,400 vehicles, according to research firm JL Warren Capital, or about 13% of the nearly 80,000 cars it delivered worldwide. The company reported in March that it earned $1.1 billion in revenue in China last year—a boost that helped Tesla join the ranks of the Fortune 500 for the first time, with just over $7 billion in revenue worldwide. And Tesla’s China news has only gotten better since then: Its imports in the first three months of 2017 have put it on pace to easily double sales this year. Wealthy drivers are crowding showrooms in China’s major cities, and Chinese buyers have put down $1,200 to preorder the company’s Model 3 sedan in numbers second only to those in the U.S.

The sales rush is the clearest sign yet that Tesla has turned a corner in the world’s largest auto market. And it has caught almost everyone by surprise. As recently as last summer, the narrative had been that Tesla just didn’t get China. The automaker was on track for its third consecutive year of weak sales. The few consumers who knew about Teslas didn’t know how to recharge one; those who preordered had faced delivery delays and iffy service. What’s more, Tesla lacked the joint-venture partners that helped other foreign carmakers break into China’s market. Michael Dunne, who runs independent advisory Dunne Automotive in Hong Kong, wrote a column in September predicting Elon Musk would reach Mars before cracking China.

Today, Dunne is cheerfully sheepish about that column, and other naysayers are equally befuddled. There’s no single explanation for Tesla’s breakthrough. Sales got a lift from the introduction of the Model X, a luxury SUV for an SUV-mad country. The company also benefited from a critical mass of charging stations; from its direct-sales model, in a country where buyers feel fleeced by dealerships; and from CEO Elon Musk’s celebrity among the technorati.

But chummy government relations also matter in a country where the state exerts enormous economic control, and Tesla’s technology just happens to align perfectly with government priorities. Cofounder Martin Eberhard has said Tesla was started to fight climate change. Nowhere is the climate fight more important than in China, the world’s largest spewer of greenhouse gases, which is in the midst of an unprecedented promotion of electric cars: Last year, sales of electric and plug-in hybrid vehicles in China rose 50% to 507,000, more than three times the U.S. figure.

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The government estimates that as many as 7 million electric cars could be sold in China annually by 2025. It sees them as a way not only to clear smoggy skies, but to hack into the top rankings of the global auto industry. In electric, Chinese companies don’t have to match the quality of a Ford or Mercedes-Benz; they think they can quickly build a whole new car. “For electric vehicles in China, we have a new technology model every two years,” says Dong Yang, a high-ranking Communist Party official at the China Association of Automotive Manufacturers, the auto lobby.

Still, virtually all Chinese electric cars are low-cost, relatively low-performance ones, without the luxury trimmings and lightning-fast acceleration that Tesla owners fetishize. Government officials consider Tesla a role model for these Chinese brands, and they’ve cheered the company from the sidelines. Today, a handful of Chinese companies and cities are feverishly courting Tesla for a joint venture, Fortune has learned, and Musk has said his company could begin building cars in China before the end of 2018.

A joint venture could turn Tesla’s China growth stratospheric, because its current model of importing cars from California is costly. Chinese tariffs and taxes boost the price of Tesla’s sedans and SUVs in the country by 50% compared with the U.S.; the Model S sedan starts at the equivalent of $105,000, and the Model X at $130,000. So even as Tesla woos middle-class buyers in the U.S. (the Model 3, due to arrive this fall, will start at about $35,000) buyers in China have mostly resembled Vanessa Zhu: wealthy drivers who view Teslas as luxury vehicles, or at least as the coolest new piece of tech since the iPhone. Most of Tesla’s 2016 sales were concentrated in Beijing, Shanghai, and Shenzhen, China’s centers of capital and affluence.

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Even if Tesla doesn’t become a mass-market brand, sales in China alone could soon climb to 100,000 a year, impacting Tesla as intensely as a new, 1.4-billion-person market would Coca-Cola. “I could see a future where Tesla is displacing a lot of those Audis and Mercedes-Benz that are everywhere on Chinese roads,” says Dunne.

Not bad for a company that, until recently, was digging out from under past mistakes.

Tesla began taking preorders in China for the Model S in August 2013. The company didn’t know exactly how much each car would cost, and deliveries were eight months away. But anticipation ran high. The combination of Musk’s renown, stories comparing Tesla’s acceleration to a Ferrari’s, and intrigue over the new technology sent preorders above 5,000 by the end of the year.

The hype was there, but the sales and support were not. The original head of Tesla’s China business was Kingston Chang, formerly of luxury automaker Bentley. Chang wanted to broadly expand Tesla’s operations, including customer service centers, public relations, and car-charging networks, according to tech news site PingWest. But Tesla headquarters told him to build a sales team first, betting that good marketing could bring in more revenue before more stores and charging stations were finished being built. Tesla opened just a single showroom in Beijing, opposite an American Apparel store in one of the city’s glitziest malls.

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Tesla’s strategy shifted again after Veronica Wu came aboard in December 2013, after a successful stint in big enterprise and education sales for Apple in China. At Tesla, she discussed adding traditional outlets like dealerships to the mix, similar to the way Apple had added retail channels in China. Though headquarters balked, Tesla in China was soon encouraging fleet sales orders of 100 or more cars from car-rental agencies and institutions, to jump-start demand. Staff, especially salespeople, soared from 10 employees to more than 100, and later to 600.

At the same time, Tesla imposed rules that frustrated individual buyers. Before customers could order a car, Tesla required that they prove they had a parking spot and a home charger, to ensure a good experience. The company also required that buyers live in a city that had a Tesla service center—even though, as of mid-2014, only Beijing and Shanghai had such centers. Some high-rise apartment managers, meanwhile, balked at having chargers installed in their buildings.

The mismatch between Tesla’s approach and customer demand created a big opportunity for gray-market resellers—who bought in bulk and catered to buyers who didn’t meet Tesla’s criteria. The company had no official resellers, but the cars made their way to many, who sold in dealerships, car centers, and even on Alibaba’s TMall for more than the same models cost on Tesla’s website. “There were a lot more scalpers than we expected,” Wu now says. Others questioned whether the company was really in the dark: “Most ‘fleet’ sales were just a flimsy cover for sales to resellers,” concluded Bertel Schmitt of Dailykanban.com, an auto industry site. It was all legal, but also a sign that Tesla had strayed from the high-touch sales approach it used elsewhere.

Tesla’s first China deliveries arrived in spring 2014; Wu later told Reuters that China sales could drive 35% of the company’s growth. But that was already sounding fanciful. Tesla was hurriedly building customer-service centers, and customers outside of Beijing and Shanghai were told they wouldn’t get their cars until those centers were finished. One buyer made national news when he smashed the windshield of his own Tesla, after it arrived months later than expected. Meanwhile, the Chinese press didn’t shower Tesla with as much coverage as the West’s did. As a result, most potential customers didn’t know much about Tesla’s product. Consumers didn’t know they could charge their car at home every night like a cell phone; most thought they had to rely on the still-small Supercharger network.

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By the end of 2014, Tesla’s business was a mess. About 4,700 cars had been shipped to China, but only 2,500 were sold and registered to drivers. (The company delivered 18,500 cars in the U.S. that year.) Publicly, Tesla blamed the gap on speculators who entered orders, then didn’t buy the Teslas once they shipped. But several former employees say the real problem was the lack of customer support. Says Ricardo Reyes, Tesla’s former communications chief: “I think Tesla took for granted that they were just going to succeed in China.”

By December 2014, both Chang and Wu had left Tesla. Tesla executives in California griped privately that China wasn’t so unique that it demanded a different strategy. But not long afterward, the company began an apology tour that marked a turning point. On a frigid evening in January 2015, during the Detroit International Auto Show, Musk admitted China sales were “unexpectedly weak.” That spring, he traveled to China to meet with President Xi Jinping and other leaders, tweeting that he remained “very optimistic” despite “earlier mistakes.” Reyes offered a mea culpa at the Shanghai auto show in spring 2015, the first Chinese motor show that Tesla bothered attending: “I think we have been a little bit too impatient in the Chinese market.” It was as contrite as the company would get—and the news it was generating was about to get better.

In 2015, Tom Zhu, a respected engineer responsible for China’s Supercharger network, became the top executive in the country. The company ended that year with a disappointing 3,700 cars sold, but there were slivers of optimism. For one thing, Tesla was building Supercharger locations in China at a faster pace than anywhere in the world, addressing consumers’ “charge anxiety.” About 120 Supercharger locations exist in China today, compared with 370 in the U.S., and Tesla says China will have more than 800 charging stations by the end of 2017.

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Just as important: Word was getting out that buying a Tesla was easier than buying other luxury cars. In China, dealerships known as “4S stores” (for “service, spare parts, sale, and survey”) largely corner the market for popular luxury brands like BMW, Jaguar Land Rover, and Mercedes-Benz. The stores inflate costs for consumers by tens of thousands of dollars with various vague fees. Tesla’s direct-sales showrooms eschew that system. And while import tariffs increase their overall cost, Tesla otherwise prices its cars in China at the same level that it does in the U.S. after currency adjustments.

Vanessa Zhu visited three other brands before she settled on her Model X. The Range Rover dealership asked for an additional 300,000 yuan ($45,000) as its standard fee, she says; Porsche told her she had to wait three months for its Cayenne SUV and required a 100,000-yuan delivery fee. Tesla in contrast, put her on a one-size-fits-all waiting list and didn’t impose fees. “In China, a car is a symbol of your status, so most people don’t care what you pay in terms of those extra fees,” Zhu says. “But I do care. I don’t like it.”

Tesla owners also found out they could beat China’s bureaucracy in the license-plate game. China’s local governments restrict the number of drivers on their clogged, polluted streets by controlling the number of plates issued. Drivers have to wait years to get one through a lottery system. (In early 2015, 6.2 million people applied for just 36,757 available Beijing plates.) And once drivers get a plate, they are barred from driving one day a week.
But plates for electric cars now fall under different rules, thanks to the government’s push for electric vehicles. Beginning in 2014, Shanghai allowed electric-car drivers to get a license plate without facing a wait, a $12,000 plate fee, or driving restrictions. Other cities followed suit, and such policies became a boon for China’s electric-car makers. Without them, “there’s no possibility that private consumers would buy these vehicles,” says Zhang Yong, deputy general manager at the electric-car offshoot of state-owned Beijing Automotive Industry Holding Co.

The policies were game changers for Tesla too. The first six cities in China to have exempted electric vehicles from license plate restrictions: Shanghai, Beijing, Shenzhen, Hangzhou, Guangzhou, and Tianjin. The cities with the highest Tesla sales, according to Junheng Li of JL Warren Capital: Shanghai, Beijing, Shenzhen, Hangzhou, Guangzhou, and Tianjin.

While the policies helped sell Model S sedans, Tesla realized quickly that the Model X would be a much bigger story in China. China’s obsession with SUVs is 10 years old and going strong. Their popularity stems from a variety of factors: Domestic ¬makers produce good models; their seating can accommodate an entire extended family; they’re widely believed to be safer; and their higher prices imbue status. German luxury-car maker Porsche’s bestselling vehicle in China isn’t a sports car but its Macan SUV.

By 2015, SUV sales were the only growing part of the Chinese auto market; in the first half of 2016, SUVs accounted for 35% of passenger-vehicle sales. It’s no coincidence, then, that a spike in Tesla sales coincides exactly with the first Model X deliveries in China, in June 2016. In the second half of last year, with the SUV available, Tesla notched 7,670 sales—about three-quarters of its total for the year in China. Tesla’s sales had finally caught up to its hype.

Close government relations are a must in China for foreign companies, and Tesla has carefully cultivated them. Like Apple, Tesla has created new businesses thanks to its demand for Chinese-made components, particularly its cars’ giant touch screens. In 2015, Tom Zhu said Tesla would double its spending on Chinese-made parts, committing to buying $500 million worth of supplies from Chinese companies that year; such spending has likely only skyrocketed.

The far bigger question mark is whether, and when, Tesla will announce plans for a factory in the country. Every car brand with significant China sales—including luxury-auto makers like Mercedes-Benz and BMW—runs a joint venture with a local partner. The government has required as much for decades. Imported cars face hefty fees, as Tesla owners are painfully aware. A Model 3 sedan’s $35,000 starting price in the U.S. becomes $50,000 in China after a 25% tariff and 17% value-added tax—a heavy lift for a middle-class buyer. “If they don’t announce plans for local production, they will struggle to sustain this performance,” says Bill Russo, former head of Chrysler North East Asia and managing director of Gao Feng Advisory in Shanghai.

Tesla remains cagey about what those plans could look like. Dong Yang, the auto lobby official, says several potential local partners are courting the company, and that multiple provinces and municipalities want Tesla to build a plant with them: “They all offer better and better options,” Dong says. In May, Musk said Tesla would more clearly define its plans for China production by the end of this year; a spokesman declined to give further details.
Tesla may be hesitating because of today’s sales numbers. If you build fewer than 100,000 vehicles a year, it doesn’t make sense to manufacture in China, says Steve Man, analyst at Bloomberg Intelligence in Hong Kong. Tesla’s factory in Fremont, Calif., can churn out more than 500,000 vehicles annually. Even if it doubles China sales this year, Tesla will just pass 20,000 cars. It faces a catch-22: It won’t sell cars at lower prices that drive sales if it doesn’t produce them locally, but local production won’t be economical until sales rise drastically.

Intellectual property is a looming headache as well. Critics of Chinese business practices argue that Tesla faces certain IP theft as soon as it brings manufacturing into China. “Yes, some of its tech will be stolen,” says Crystal Chang, a lecturer at University of California at Berkeley who studies China’s auto market. But Chang adds that the danger inherent in that theft is overstated. “Just stealing tech does not make [a rival] a competitor,” she says. “It’s all about brand.”

Today more than a dozen Chinese-backed manufacturers (many of them American startups that now have Chinese owners) are tripping over one another to promote their electric cars and acceleration times; Faraday Future, Karma Automotive, NextEV, and Future Mobility are but a few. But most are likely to be stuck in the concept or prototype phase for the next several years—even as Teslas zip across China.

That’s one reason Tesla may be able to reach an agreement to produce cars in the country on favorable terms. China lusts after Tesla’s technology but also its management practices. And Tesla already offers its patents to anyone who asks—making it highly plausible that Musk would agree to more information-sharing in return for a vastly expanded market for Tesla’s cars.

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One big Chinese corporate player seems to have no doubt about Tesla’s prospects. In late March, Tencent, the politically connected technology giant that recently became one of the world’s 10 largest publicly traded companies, said it spent $1.8 billion buying Tesla stock. Not long afterward, Tesla’s market capitalization edged past that of General Motors, making it the most valuable American automaker.

On a recent Sunday night, three dozen prospective buyers gather in a Tesla showroom in Beijing for a wine tasting. The crowd of mostly thirtysomethings skews wealthy, and cares some about the environment, but they’re mostly in awe of the brand. Tesla’s buyers’ circle has expanded to include the rich along with the very rich. Jeff Yu, whose family runs a yogurt business, thought about buying an SUV from Mercedes-Benz or Maserati, but was put off by their glitz. “Tesla is a tech thing. That’s my taste,” he says.

Evan Qu, a slim man sporting a designer shirt and Buddhist wrist beads, sells audio equipment; he thinks executives at his biggest customer, CCTV, the central broadcaster, will appreciate the environmentalist aura of the Tesla when he rolls up to their next meeting. “This car helps you get more deals,” he says. On Tesla’s website, he’s customized his Model X—color: ocean blue—for a total cost of 1.2 million yuan ($175,000).

A waiter refills Qu’s glass as a promotional video on a loop in the background underscores his aspirations. Choose a Tesla green vehicle, it says, over and over, to advance a better life in the future. 

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如果你第一次乘坐特斯拉汽车，会发现车主总会忍不住炫耀爱车。这次在中国北京，春光明媚的一天，我坐上朱小姐的特斯拉就发现了这点。

“屏幕特别大，是吧？”她边说边在中控台上选歌，特斯拉的中控台比普通车上的大一倍，长得很像iPad。她手指轻盈划动，直到车里响起阿黛尔的《送上我的爱》。随后Model X鸥翼车门轻声关上，车外景色透过全玻璃车顶一览无遗。朱小姐供职于一家国际大型营销机构，之前她开的是宝马X5，由于中国路况混乱，偏爱SUV带来的安全感，所以买了特斯拉。朱小姐是中国首批Model X车主，特斯拉还没算出来价格时，她就交了预付款定金。

“现在把头向后贴在靠枕上，”她向我建议。

两车道的马路上拥堵异常，路也不平整，突然出现一段平路，朱小姐迅速加速。我们疾驰超过一辆黑色的小现代车，快到旁边那辆好像停着没动一样。有一瞬间，车主和乘客同时感觉一股眩晕。红灯了，朱小姐踩了脚刹车，轻声笑着换了另外一首阿黛尔的歌。

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如今，在中国大都市里看到特斯拉呼啸而过很正常，就跟在硅谷看到特斯拉差不多。

据研究公司JL Warren Capital 统计，2016年特斯拉在中国的销量为前一年的三倍，达到10400辆。当年全球销量80000辆，中国占13%。今年3月特斯拉宣布去年在中国销售收入达11亿美元，特斯拉也首次跻身《财富》500强榜单，2016年其全球总收入略超70亿美元。而且特斯拉在中国的业绩还在增长：从2017年前三个月进口数量来看，今年销量翻倍易如反掌。中国各大主要城市里，富有的司机们纷纷涌入特斯拉的展厅，预交1200美元订购Model 3的买家人数仅次于美国客户。

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从亮眼的销售业绩来看，特斯拉已经在全世界最大的汽车市场站稳脚跟，而且出乎绝大部分人意料。就在去年夏天，人们还普遍认为特斯拉在中国做不好。特斯拉已经连续第三年销售疲软。只有很少客户了解特斯拉，却不懂怎么充电。交钱预定了却总是交货延迟，售后服务也不完备。此外，特斯拉也不像其他外国车企一样在中国成立合资公司。香港独立咨询公司Dunne Automotive负责人迈克尔·邓恩去年9月曾写过一篇专栏，预计埃隆·马斯克打入中国市场估计会在征服火星之后。

如今再谈去年的专栏，邓恩只会不好意思地笑笑，其他看空者也都是一头雾水。特斯拉为何能在中国市场突围，其实没有清晰的解释。看起来特斯拉在热爱SUV的中国推出了一款奢华SUV——Model X，销量就开始大涨。其他原因还包括特斯拉建起了密集的充电站；中国买家受够了经销商盘剥，而特斯拉采用直销模式；此外特斯拉首席执行官埃隆·马斯克在科技圈是著名大佬。

特斯拉的技术恰好跟政府的工作重心吻合。联合创始人马丁·艾伯哈德表示特斯拉已开始应对气候变化。而气候变化在中国如今是头等大事，中国是全世界最大的温室气体排放国，正大力推广电动车发展：去年，中国电动车和混合动力车销量超过50%，达到50.7万辆，是美国同期销量三倍还多。