(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

 

HONG KONG - Tesla will give up its pole position in China. An April sales drop and pared-back plans for its Shanghai plant suggest it is already facing a rougher ride. The $595 billion brand can still prosper, but not as leader of the pack.

The U.S. company is under fire. At last month’s Shanghai auto show a customer clambered on to a Tesla in a t-shirt bearing the words, “the brakes don’t work”. Her protest went viral, perhaps because it followed allegations of battery fires, as well as U.S. investigations into its autopilot systems. Tesla’s clumsy response that the protester might be a professional acting on behalf of others made matters worse. The company later issued an apology and confirmed it would work with regulators to resolve any issues.

The incident could be a bump in the road. Mercedes had to deal with a similar incident in April, and brand boycotts are often short-lived in China. But Tesla’s woes flash warning lights, because it has unprecedented privileges as the first Western marque to enter China without a local partner. That and a huge share of the electric-vehicle market leave it vulnerable to scrutiny and censure as Beijing backs domestic carmakers.

Granted, April’s 27% month-on-month fall in sales of China-made vehicles still leaves Tesla delivering, at some 25,000 cars, far more than in January or February. But the April number was flattered by exports, which the China Passenger Car Association broke out for the first time, and it comes as Chinese consumers have plenty of options, including Nio, Xpeng and other home-grown champions. Meanwhile, Reuters’ report on Tuesday that Tesla is halting plans to buy land needed to make its Shanghai base an export hub shows U.S.-China tensions remain a hindrance to Musk’s ambitions.

Tesla doesn’t need to be in the top spot in China, just as it no longer is in Norway. Chinese sales, though, account for around a third of Tesla’s total and Musk has been talking up its prospects. Even after its 13% drop this year, the stock trades at 206 times earnings versus an industry average of 13. Signs it’s losing energy in China could prompt investors to take their foot further off the accelerator.

 

CONTEXT NEWS

- U.S. electric car maker Tesla has halted plans to buy land to expand its Shanghai plant and make it a global export hub due to uncertainty created by U.S.-China tensions, Reuters reported on May 12.

- The company is facing a backlash in Chinese state media after a customer staged a protest at the Shanghai auto show in April at how it handled a complaint. The official Xinhua news agency called Tesla's response to the incident “insincere”.

- Tesla sold 25,845 China-made cars in April, down from 35,378 cars in the previous month, data from the China Passenger Car Association showed. The figures in February and January were 18,318 and 15,484, respectively. The April data for the first time broke out the number of exports included in the total sales; those amounted to 14,174, while the March total was mostly domestic sales, according to the CPCA.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS http://bit.ly/BVsubscribe | Editing by Antony Currie and Sharon Lam) ((katrina.hamlin@thomsonreuters.com; Reuters Messaging: katrina.hamlin.thomsonreuters.com@reuters.net))