3 reasons why 2015 will not be the year of Tesla in China

According to yesterday’s Q3 2014 Investor letter, the Tesla store in Shenzhen, China remains one of the young automaker’s most popular and highest-grossing locations worldwide. On top of that, the Chinese government, which is interested in combatting smog with electric vehicles, has been supportive of Tesla’s expansion into the Middle Kingdom.

Despite all this good will and demand, it looks like 2015 will not be the year that Tesla makes a grand push for the huge Chinese market. Here are three reasons why.

Production

“We don’t have a demand problem, we have a production problem.”

CEO Elon Musk made it clear on yesterday’s earnings call that in North America, Europe, and Asia, demand for Tesla’s Model S and Model X vehicles is strong — so strong that Tesla can’t yet keep up.

Services and support

The Fremont, Calif.-based automaker is presented with some interesting challenges, like providing consumers with an easy way to refuel their cars. Conventional vehicles don’t need their own gas station; Toyota drivers, for example, can fuel up at any gas station. The fueling station infrastructure is part of what makes traditional cars so convenient to operate. Comparatively, Tesla drivers have fewer options for recharging on the go, because the electric car maker’s charging station network is still in the works. Called Superchargers, these stations are only available in markets where Tesla sells its electric vehicles (EVs). So far Tesla has built and is maintaining 229 separate supercharger facilities worldwide.

The small supercharger network is at the heart of Tesla’s expectations for slower growth in China throughout 2015. While the company is focused on producing high-quality and performance luxury vehicles to precise specifications, dropping a car off on the shores of the People’s Republic without a solid network of charging stations and support services is anathema to the way Tesla does business.

 “The [Chinese] delivery experience has not been the way we like it,” Musk said yesterday. “The Tesla infrastructure needs to be there to support it. Our China team is building it out faster than any region. But you can only do it at a certain rate and do it right.”

Slow expansion

Indeed while Tesla’s Chinese infrastructure expansion may be rolling out faster than any other region, Tesla’s Q3 2014 letter to investors shows that China’s well behind the U.S. and Europe where Superchargers and service centers are concerned. Europe’s been peppered with 82 Superchargers, and the U.S. has 124; China has just 23.

Still, however slowly, Tesla is dedicated to carving a path forward in China. Tesla’s executive team stated clearly that its low-cost Model 3 would likely be produced worldwide out of factories currently under construction in Tesla’s main international markets, Europe and China. Besides, there’s considerable expense involved in transporting anything that weighs more than a ton en masse.

“It’s not going to make sense in the long term to be transporting thousands of cars across the Pacific,” Musk said during the earnings call.

The Chinese government is very supportive of electric vehicles, and Musk mentioned Tesla’s interest in working with China in order to use his cars for its electric vehicle initiatives. Already, taxi drivers use the Model S at Amsterdam’s Schiphol Airport.

The Model 3 is expected to debut in 2017.