Tesla showrooms in China undergo internal review

Tesla delivered a near-record number of China-made cars in August – 76,965 in total. The Tesla brand continues to appeal to consumers in the country, which accounted for the most global vehicle sales in 2021 – 26 million units. Since opening its first store in central Beijing in 2013, the all-electric car company now has more than 200 Tesla showrooms across the country.

But are all these Tesla showrooms well placed? This is what the company decides now.

Ah, to walk into a Tesla showroom in urban China is to walk into a contemporary space with diffused light and clean lines. Parallel rows of small white overhead lights mirror the deep blue exterior of a Model 3. On one wall is a long, brightly lit photo of the Model S, against a backdrop of high skies and hills. Another photo display shows a Model X at sunset at road level, with piercing orange rays embracing the car as it zooms along an empty winding road.

Peering through the showroom window, one sees the city street and flashes of buses and pedestrians, low thick buildings and landscaped gardens of deep green shrubs . An exterior wall-mounted video screen shows a film of the car assembly in action; in front of her are 3 equidistant Teslas: a white Model X, a red Model 3 and a blue Model S.

Since delivering its first electric car to a Chinese customer 8 years ago, Tesla has viewed the country as a key market for sales and a base for manufacturing. Tesla’s second-largest market for all of its global sales is in China, surpassed only by the United States. The Tesla showroom approach worked well in urban China – at least until waves of Covid suppressed foot traffic in high-end malls.

Covid and the Tesla Showroom Marketing Model

Still seen as having a slightly different approach to marketing, Tesla bypassed the traditional car dealership model and created a direct manufacturer-to-consumer distribution channel. Through Tesla showrooms, potential consumers can touch an attractive model and ask customer service representatives to arrange test drives. While Tesla showrooms provide a tangible shopping experience, the majority of information can be found on the company’s website, which functions to communicate and be a shopping portal without people.

Every automaker in China has been affected by the coronavirus outbreak as it was difficult to conduct offline SEO activities such as test drives, auto shows, or press conferences. Fears of massive Covid contagions prompted Chinese authorities to launch several lockdowns, including in Shanghai, where Tesla’s Gigafactory is located. It was Tesla’s first Gigafactory outside the United States, built in 2019 in less than 6 months, and Giga Shanghai was the first automobile factory in China wholly owned by a foreign company. In January 2020, Tesla donated the equivalent of $723,000 to the Chinese Center for Disease Control and Prevention to help fight the Covid pandemic in mainland China.

Reuters reported this week that Tesla is considering closing showrooms in flashy malls in cities like Beijing. Covid restrictions have really hampered consumer traffic in these areas, but not across the country. The idea is that Tesla would maintain a few urban showrooms downtown to promote brand positioning.

Rather than admitting that the Chinese market has faded, it seems Tesla has realized that moving to suburban areas where it can also provide maintenance services might be the more prudent move. More than half of the existing stores in China do not offer maintenance service due to the high price of the real estate in which they are housed.

Sales of electric vehicles in China

The increased variety and affordability of electric vehicle models, rising gasoline prices, increased production from OEMs, improved range and more charging stations have all contributed to the increase in electric vehicle sales over the past year.

Electric and hybrid cars have been very successful in recent years in China, thanks in particular to the support of the Chinese government, but also because buying an EV avoids the cost of buying a license plate, which represents a considerable saving. Also, with Chinese production back on track after the Covid shutdowns, it looks like sales are back to their previous growth rate.

After a planned upgrade disrupted most production in July, Tesla ramped up production at the Shanghai factory in August, defying heatwaves and Covid restrictions that hit its suppliers in the southwestern region. By the end of August, Tesla had sold around 400,000 Model 3s and Model Ys made at the Shanghai Gigafactory in 2022. Of those, 60% were local sales, according to the China Passenger Car Association.

BYD is the top-selling electric vehicle brand in China. Thanks to its different factories in the country, the company has a competitive advantage to integrate all the key components in-house. Additionally, with the help of grants, BYD was able to achieve economies of scale, lowering its unit cost and allowing it to spend more on research and development.

Tesla is keenly aware of BYD’s successes in the Chinese EV market, but is still looking for its own breakthroughs.

Improve service operations in conjunction with Tesla showrooms

Stores located in the suburbs would represent less overhead for Tesla and would be well located to carry out repairs. This duality of goal signals has increased Tesla’s respect for consumer confidence in sales as well as service.

The company says it designs every Tesla vehicle with the goal of eliminating the need for maintenance. Coupled with remote diagnostics and over-the-air software updates that regularly improve the car, the goal is for Tesla owners to spend less time in the shop and more time on the road.

But dissatisfaction with Tesla erupted in China last year when regulators and state media learned of a disgruntled customer complaint at the Shanghai auto show that went viral. A disgruntled customer rode a Tesla at the auto show to protest the company’s handling of her complaints about faulty brakes, sparking a social media storm. While Tesla issued a brief apology, China’s market regulator urged Tesla to ensure product quality in the country, while the official Xinhua The news agency complicated matters by insisting that Tesla’s apology was “insincere”.

As a result, Tesla CEO Elon Musk has set himself the goal of improving service for existing customers, many of whom have complained of long delays.

Of course, auto repairs have always been a lucrative part of the auto industry, and Tesla is constantly looking for ways to increase profitability.

Notably, for these suburban Tesla showrooms to open, the company would need more staff. Its website currently displays 300 service job openings in China.

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