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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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How Tesla Just Tripled Its Earnings In China

Tesla China

Earlier this month, Tesla Inc reported that its revenues in China topped $1 billion in 2016, more than triple the revenues it generated there in 2015. The Chinese market was only second to the U.S. in terms of revenue generation for Tesla last year.

The electric carmaker is not breaking down revenues by items, and has not offered any explanation for the triple revenues in China. The revenue jump could have been the result of China’s license plate-issuing policies in major cities that fast track EV license plates issuing as the country grapples with perpetual pollution and traffic jams.

Tesla’s Chinese revenues last year were $1.065 billion, compared to $318.5 million in 2015, and $477 million in 2014, the EV carmaker’s regulatory filing from March 1 shows.

According to Reuters Breakingviews’ Robyn Mak, one of the key contributors to Tesla’s soaring Chinese revenues is the local green-car, or so called ‘new energy cars’, policies.

In its fight against pollution and an attempt to alleviate congested city roads, Chinese authorities and many city traffic management authorities are favoring the issue of license plates for electric vehicles, while imposing severe rules and often lottery-like granting of license plates for other cars.

The capital city, Beijing, for example, had 2.7 million applicants for license plates last June. In that lottery round, only one in every 725 applicants managed to get a license plate, the New York Times reported.

Last year, the quota for electric vehicle license plates in Beijing was 40 percent of the city’s total new car license plate quota—EV registrations were to be 60,000, while conventional fuel car plates to be issued were 90,000, according to Climate Home.

In many cities, drivers need in-city traffic license plates for their gas and diesel vehicles, and face penalties if they drive with out-of-town license plates. On the other hand, electric vehicles and hybrid cars are exempt from conventional car registration systems in some areas of China. The tough conventional car-licensing and registration rules have convinced Chinese in many cities to try electric vehicles.

In addition, often generous subsidies for buying local EV brands – including Warren Buffet-backed BYD – are fueling the rise in electric vehicle sales. Related: Can Renewables Save These Downed Energy Giants?

Tesla, as a foreign-made vehicle, is not subject to those subsidies, which highlights the argument that Elon Musk’s company would be susceptible to any Chinese policy change regarding green cars acquisitions and registrations.

In December last year, China launched a pilot program to issue special license plates for new energy vehicles in five cities—including Shanghai—in a bid to fight pollution and promote the use of EVs. The owners of the special plates—distinct from the traditional plates in color, size and number of digits—think their cars are ‘cooler’ with the special plates.

Tesla’s vehicles in China are of a premium make that has almost zero competition from local lower-end brands, and this selling point could be Tesla’s winning strategy in the world’s biggest car market.

However, Tesla’s surging revenue in China in 2016 may have been a one-off event, and revenues in the future could depend on how Chinese authorities will treat foreign-made electric vehicles in license plate grants.

By Tsvetana Paraskova for Oilprice.com

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  • Josh Gregner on March 20 2017 said:
    If Tesla succeeds in China or not is - in my eyes - secondary: China will impose aggressive electric car quotas. In addition they seek to replace fuel driven buses with electric buses. If this becomes more wide-spread practice, then India and other countries will follow suit. This will eat into oil demand growth and may significantly slow the expansion of the oil market.

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