Tesla Struggles With Sales In China; Musk Downplays Problems

Tesla sales in China last month were far below targeted numbers, and an internal email indicates that CEO Elon Musk is ready to fire managers to fix the problems.

In a recent webcast, however, Musk said issues in China are overblown and he expects strong sales to return by the end of 2015. The latest issues he did not directly address include a report of just 120 cars sold adding to two top managers leaving in 2014 among other things.

Musk was not as optimistic in the internal email however, according to two sources interviewed by Reuters which was the source of the low January sales report.

Company managers that are underachieving “will be asked to leave or assume a more junior role,” Musk wrote in the email. “This has already happened in China and will likely happen in some other countries, too.”

Personnel in the finance, IT, HR and other departments not linked to vehicle production were also at risk, according to the email.

“We have no choices in this regard. There is no way that we can afford to subsidize a region of any size in the long term without causing serious harm to the company,” said Musk in the email.

The Model S has been on sale for a year and a half in China. Musk had projected that by as early as 2015, sales in China could be as high as 1,300 to keep pace with the U.S. market. But last month, as mentioned, only about 120 sales were finalized. These are drastically low numbers for what Musk had hoped would become Tesla’s second-largest market.

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“Charging installations, given the delayed regulations and challenges there, have been a difficult customer experience and we want to overcome that,” said Deepak Ahuja, Tesla’s chief financial officer, during a webcast for the company’s 2014 earnings.

This has been a key cause of the poor sales. Charging stations are still sparse in China, and few residences have the ability to install a home charger. But Musk chalks the problem up to misunderstandings, not logistics.

“The biggest issue which we’re still fighting to address is this misconception that it’s difficult to charge your car in China,” said Musk during the same webcast. “This is false. It is not difficult to charge your car in china.

“Unfortunately – this sounds kind of brain dead – but our sales team was telling people that it was difficult to charge in China, even though this is not true. That’s pretty silly.”

During the webcast, Musk downplayed these issues, and never mentioned the internal email or discussed the poor sales directly.

“This whole China thing has been blown way out of proportion,” said Musk. And China’s flat sales – they don’t really matter.

“People don’t really get that. It’s not like there were all of these extra cars we could have produced. And if only we had a bunch more customers in China we could have sold those cars. We were production constrained. I wish we weren’t, but we were. We look forward to getting demand constrained in the future.”

Though he didn’t mention any of the personnel lost last year, including two of China’s managers, Musk did talk about gaving an engineer the task of addressing the misconceptions over charging stations:

“I put the guy who was in charge of the Supercharger rollout in China, who is doing an awesome job. He’s an engineer, basically – he’s not a salesperson – in charge of China to make sure that charging is super easy and excellent.”

There has been a positive trend in China already with improvements every week, said Musk. To strengthen Tesla’s position in China, he intends to localize manufacturing, research and development, saying that it doesn’t make a lot of sense to build cars in California and ship them overseas. He’s confident that these changes will turn things around for Tesla in China.

“Our sales in Hong Kong are excellent. But we don’t have that misconception about charging in Hong Kong.

“I’m confident that by the end of this year that we’ll be in really good shape in China. I’m pretty optimistic about it.”