On the first floor of Beijing's most creative shopping mall, Galaxy Soho, there has always been a locked store covered by a giant car poster that reads "Go Electric".
This is where the electric vehicle Tesla chose to set up its experience store on the Chinese mainland.
A few years ago, Tesla had already contacted the mall for cooperation and secured its spot in 2012. However, due to approval procedures and the trademark being preemptively registered, Tesla was unable to meet the car enthusiasts in China.
However, regarding the repeated delays in the opening of Tesla's first Model S experience store on the mainland, its CEO Elon Musk finally spoke up during the second quarter earnings call on August 7: "(The Beijing experience store) may open later this year."
Since Tesla turned its first profit in the first quarter of this year, it broke the long-standing curse of unprofitable electric vehicles. Even so, it has not been favored by some investment institutions on Wall Street.
Nevertheless, on August 7, Tesla delivered another impressive second-quarter earnings report, with both car sales and gross profit margin exceeding Wall Street expectations. For example, Model S sales broke records again in the second quarter, reaching 5,150 units, exceeding the previously estimated 4,500 units.
Tesla's success can be attributed to leading technology and design concepts (for more details, see the 22nd edition of our newspaper on May 27, 2013).
In addition, the loan from the U.S. Department of Energy played a significant role in Tesla's development, though Musk rarely mentions it and holds different opinions.
Still Strong Growth
Defying the negative expectations, Tesla achieved good results again in the second quarter of this year.
According to Tesla's financial report, Tesla's net loss in the second quarter was $30.5 million, narrower than the net loss of $106 million in the second quarter of last year, better than market expectations. However, if not following U.S. GAAP, Tesla's net profit in the second quarter increased by 70% compared to the first quarter, mainly due to the delivery record of the Model S and the significant increase in the automotive gross profit margin.
In fact, over the years, Tesla has earned $126 million from the sale of ZEV credits (Zero-Emission Vehicle Program).
In the first quarter of this year, it sold ZEV credits worth $6,790, equivalent to 12% of total revenue, which was an important factor in Tesla's profitability in the first quarter.
However, this is one of the reasons why investment banks like Goldman Sachs downgraded their expectations for Tesla.
It is understood that in the 1990s, California introduced the ZEV program, setting aggressive zero-emission goals for automakers. If automakers did not meet the threshold, they would have to pay a fine of $5,000 per ZEV point or leave the California market; automakers that did not meet the standards could buy points from other automakers, and Tesla signed such purchase contracts with traditional automakers like Honda.
However, the California Air Resources Board (ARB) is considering revising the ZEV rules, possibly limiting Tesla's ability to profit by selling large amounts of ZEV credits to other automakers.
Of course, some people worry that this will affect Tesla's overall performance, and some analysts believe that Tesla's current profit growth is due to accounting tricks.
However, Musk believes that based on current development, the company has the potential to achieve a 25% gross margin target in the fourth quarter without ZEV credit income.
The Power of Policy Behind Success
The development process of an event is always accompanied by pessimists and optimists, and Tesla is facing such a situation. Regardless of external comments, Tesla's survival undoubtedly gave the long-depressed electric vehicle market a boost.
In fact, Tesla's achievements today are inseparable from the support of the U.S. government, despite Musk holding different views.
Musk once expressed his personal opinion on loans via Twitter, believing that a carbon tax might be more beneficial to the company than huge loans.
However, a Chinese engineer familiar with Tesla based in Silicon Valley analyzed for this reporter that in fact, the loan from the U.S. Department of Energy played a significant role in the production of Tesla's Model S product, as Tesla at the time did not have enough credit to secure commercial bank loans.
If we look back to 2010, we can better understand the importance of the $465 million loan from the U.S. Department of Energy for Tesla.
From the company's establishment to the end of March 2011, Tesla confirmed a total revenue of $292.5 million but spent $373.9 million in operating activities and accumulated a loss of $463.9 million.
"Suppose you start a car company called Da Vinci Motors today, your company loses $10 million a year, and there is $50 million cash in the company account. Today you go to Citibank and ask your old friend to lend me $500 million. What would be his first reaction? Definitely no! Because he doesn't believe you can pay it back," the aforementioned engineer gave an analogy.
However, after Tesla received the loan from the U.S. Department of Energy in 2010, the production of Model S began. Mid-year, Tesla went public on NASDAQ, and later performed exceptionally well in the stock market, with prices surging.
It is understood that the energy department's loan mechanism is managed by the Loan Programs Office of the U.S. Department of Energy and started in 2005. Its mission is to support the commercialization of innovative and advanced clean energy technologies within the United States, and the scale of these technologies' development should ideally contribute to the U.S.'s clean energy goals, including job creation, reducing dependence on foreign oil, improving environmental heritage, and enhancing U.S. competitiveness in the global arena of the 21st century.
The loan program is divided into three categories: 1703 (biomass, solar, wind, fuel vehicles, nuclear, electric transportation, etc.); 1705 (renewable energy systems, power systems, and leading biofuels); ATVM (advanced technology vehicles and parts, including Tesla).
Of course, obtaining subsidies from the U.S. Department of Energy is not easy, requiring application and approval, and these subsidies are all based on the advancement and innovation of a technology.
Potential Entry into China by Year-End
In fact, Tesla's boss, Elon Musk, not only hopes that his electric cars capture the American market but also desires a strong presence in the Chinese market.
However, he encountered several issues in the Chinese market, such as the need to go through a series of complex approvals from the Chinese government, and the company's trademark had already been registered.
Even though Tesla's second-quarter financial report mentioned little about its China strategy, Musk remains confident about the Chinese market and has already established a marketing team in China, bringing in the manager who was previously responsible for Bentley's operations in China to join Tesla.
Musk said that when Tesla releases its fourth-quarter financial report, there will be more stories about China, and he looks forward to "unexpected surprises" from China.
Moreover, the Model S will undergo special improvements for Chinese consumers.
Musk stated that initially, the design focused more on the driver, with rear seats being standard family seats. However, Chinese users typically prefer to be passengers rather than drivers, so the rear seats of the Model S sold in China might be modified into more comfortable business-class seats.
As Tesla gains popularity and advances into the Chinese market, discussions have arisen in China comparing it to BYD. Many people believe that in terms of design and performance, BYD and Tesla are not comparable.
BYD's boss, Wang Chuanfu, could no longer contain himself. In June of this year, he exclaimed, "Once household consumption starts, BYD can produce Teslas in minutes."
However, recently, domestic media "China Entrepreneur" sent reporters to interview Tesla in the U.S., and Musk responded very confidently: "He says he can produce Teslas in minutes? Okay, I don't think BYD is our competitor."
Musk emphasized that it's not because BYD is a Chinese company, but all electric vehicles like Nissan Leaf, Chevrolet Volt, Ford Fusion are different from Tesla, not in the same league, and thus incomparable.
In reality, Tesla is a product-driven company, and from the beginning, the positioning of electric vehicles made by BYD and Tesla were different. Currently, the target markets of the two do not overlap.