Author: Tian Hui
In April, Tesla’s sales in China were only 12,000 vehicles, compared to 34,700 in March, a sharp drop.
Is this a coincidence? Or is there really a decline in demand for Tesla?
According to the Electric Vehicle Observer, Tesla’s insurance sales in the first two weeks of May were equally bad.
From May 1st to 16th, Tesla’s insurance sales were only 7,500 vehicles, of which Model 3 was reduced to about 800 vehicles. If this trend continues for the second half of the month, Tesla’s total insurance sales for the month will only be a little over 10,000 vehicles, and Model 3 insurance sales may not exceed 3,000 vehicles.
Even if Tesla’s total insurance sales rebounded in May, it was still a clear sign of decline compared to when the Model 3 alone easily surpassed 20,000 vehicles, with a total of 30,000 vehicles.
On the public opinion front, there is almost a daily spread of news about a Tesla traffic accident in the circle of friends. In addition, there are occasional false reports of parking lots prohibiting entry. Tesla’s reputation is facing a huge challenge.
What is the reason for Tesla’s sales decline in China? Will it continue to decline?
Model 3 is unpopular
Even when Tesla’s overall sales were increasing, Model 3 was already declining.
In the first quarter of 2021, Tesla’s insurance sales increased by 16.1% compared to the previous quarter, but Model 3 insurance sales began to decline, with a 10% drop in comparison. The overall sales increase was supported by Model Y.
Model Y had surpassed 10,000 vehicles in insurance sales in just three months, helping Tesla exceed 30,000 vehicles in sales in March 2021.
In April, Model 3 insurance sales dropped to 6,438 vehicles, a 74% decrease from the previous month, and public opinion speculated that this was largely related to the Shanghai Auto Show rights protection event. However, the rights protection event only occurred in late April and could at most affect one-third of Model 3’s overall sales, but the fact is that Model 3’s sales decreased by 74% compared to the previous month.
This indicates that even without the influence of the Shanghai Auto Show rights protection event, Model 3’s sales would still have declined.
On New Year’s Day 2021, the newly-designed Model 3 was launched with multiple configurations such as a heat pump air conditioner and a heated steering wheel, but the signal of Model 3’s sales decline had already appeared.
Q1 2021, the number of insured Model 3 cars was 52,495, a MoM decrease of 10%. Considering the factor of the Spring Festival, the MoM decrease in the number of insured Model 3 cars is still within an acceptable range for Q1. Additionally, it should be noted that in March, Model 3 achieved a new sales record of 24,542 units.
This indicates that there is still demand for Model 3, but Tesla’s sales are following the seasonal pattern of the traditional auto market.
According to the rule of the auto market, the spring between the Spring Festival and May is the weakest sales season of the year, so Tesla’s Model 3 sales continued to decline in April, which is also normal.
However, what is abnormal is that the female Tesla owner’s rights protection incident at the Shanghai Auto Show has accelerated the decline in Model 3 sales, which in turn caused a sharp drop in Tesla’s overall sales in April.
On the opening day of the Shanghai Auto Show on April 19, a rights protection incident occurred at the Tesla booth, which sparked strong public criticism of the company. Since then, Tesla has experienced a series of negative events, with almost one new negative incident per day at its peak.
The rights protection incident did not stop, and Tesla was found to have been banned from driving into some confidential units due to data security issues.
The impact of the series of negative events that occurred after the rights protection incident at the Shanghai Auto Show on Tesla’s sales was further reflected in the number of insured cars in May.
Looking at the number of insured cars on a weekly basis, consumers lost confidence in Tesla Model 3 for a while. The lowest number of new weekly insured Model 3 cars was only 215.
While Model 3 sales have declined, Model Y sales continue to rise.
In April, when the Model Y production line at Tesla’s Shanghai factory was shut down for two weeks for upgrading, the number of weekly insured Model Y cars continued to reach around 3,100, which made Model Y the main force of Tesla’s sales, replacing Model 3.
This situation is also reflected in the terminal market.
Shenghua Motor Vehicle Inspection Center is the designated vehicle inspection and registration center for Tesla in Beijing. According to staff, the number of Tesla cars registered in a single day reached more than 150 at its peak, but now it’s only around 70 per day, and recently, Model Y is clearly more than Model 3.
On May 25, Electric Vehicle Observer saw 17 Model Y and 7 Model 3 cars come for inspection and registration at the Shenghua inspection center within an hour.It is not surprising that Model Y is replacing Model 3 as the sales mainstay. In the US, about a year after the start of Model Y deliveries, Model Y became Tesla’s sales mainstay, and Model 3 sales plummeted by 35% YoY.
However, Model Y replacing Model 3 cannot explain the overall sales decline of Tesla in China.
Black Swan or Grey Rhino?
We need to go back to the Tesla Shanghai Auto Show rights protection incident. This incident seems like a Black Swan event, but it is actually a Grey Rhino event.
The outbreak of the rights protection incident at the Shanghai Auto Show is closely related to Tesla’s long time ignoring consumer complaints and media opinions. This seemingly accidental Black Swan event is actually an inevitable outbreak of long-term accumulated conflicts.
Tesla doesn’t believe that the sales decline in April is related to this incident.
Tesla’s official explanation of the sales decline in April is that production line adjustments and capacity are used for exports.
The explanation is rather far-fetched.
Taking the production line adjustment argument as an example, Tesla adjusted the Model Y production line and is expected to affect the production of around 4,000 Model Ys. But this argument cannot explain why Model 3 sales have plummeted.
The argument for export capacity does have data support. According to the China Passenger Car Association, Tesla exported 14,174 vehicles in April. However, considering that the Shanghai factory has a production capacity of over 20,000 Model 3s per month, and some of the exported vehicles are Model Ys, this argument is also shaky.
The real reason for the sales decline may have little to do with the factory and production capacity, but more likely has to do with marketing and public relations operations.
Based on the weekly insurance numbers, even without the Shanghai Auto Show rights protection incident, we can infer that the Model 3 sales in April would still be around 7,500 units, not exceeding 10,000 units altogether, using the total of 21 days ranging from April 5 to April 25.
This is the main reason for the sales decline.
The Shanghai Auto Show rights protection incident occurred in late April, but Tesla’s sales had already started declining in the middle and late April. As the incident escalated, the willingness of new car insurance buyers to buy Model 3s dropped significantly, with a weekly insurance number of only 215.
The rights protection incident at the auto show was a culmination of Tesla owners’ and consumers’ dissatisfaction with Tesla.
“Love you, me, him, stay away from Tesla” is the signature of a Tesla rights protection owner on social media, reflecting the anger of Tesla owners towards Tesla.Facing the multiple doubts from consumers and public opinion, Tesla’s crisis PR level is obviously inadequate. Not only did they fail to release relevant data and propose solutions in a timely manner, but they also adopted a “no compromise” approach to deal with the rights protection event and used “Bubble Tea PR,” which triggered mockery.
Poor crisis PR capability has turned the suspicion of Tesla’s products and PR ability into a comprehensive suspicion of the company. At this time, there are also continuous media reports on the “Tesla ban” incident.
In fact, most of the “Tesla bans” are not exceptions. There are already regulations in the classified departments that prohibit the use of cameras in certain situations, and these regulations have long existed, and they are not specifically aimed at Tesla. Some occasions even prohibit the entry of smartphones with camera functions.
The “Tesla ban” signs, notices, and other information spread on multiple Internet social platforms, although they are mostly proven to be false, the strong signal that most consumers receive is that Tesla is in trouble and may face entry bans.
After multiple negative public opinions occurred, extreme media even created a stir saying that Tesla will withdraw from China in the future, making uninformed consumers even more worried.
Li Jinyong, the chairman of the New Energy Vehicles Branch of the National Federation of Industry and Commerce, expressed that in this kind of public opinion state, consumers find it difficult to make a purchase decision, “why should I buy Tesla? It may withdraw from China. What should I do in the future after buying a car?” He believes that the decline in Tesla’s sales is not really related to product strategy or product quality, but mainly due to poor crisis PR handling, which has caused public resentment.
We reached out to Tesla’s PR company for inquiries about sales and negative events, but did not receive a response before the article was published.
Will Tesla continue to decline?
The sudden drop in Tesla’s sales was unexpected, but not surprising.
It is unexpected that the Shanghai Auto Show rights protection event unexpectedly accelerated.
It is not surprising that Tesla’s sales may also decline during the off-season. New products have a substitution effect on old products.
At the Shenghua Inspection field, the owner of a Model Y that was being registered told the “Electric Vehicle Observer” that she had reserved the Model Y before the Spring Festival and did not receive it until the end of May, which shows how difficult it is to obtain a Model Y.
But on Tesla’s official website booking page, the estimated delivery time for Model 3 in June has been reduced to 1-3 weeks.Consumers are only postponing the purchase of Model 3, which has not yet affected Model Y. After all, “Model Y is still in the order digestion stage, and from the number of insurances and the actual situation, the sales of Model Y will still be maintained.”
With the decline of Model 3 and the maintenance of Model Y, opinions on Tesla’s future sales are not consistent.
After all, there are many choices and available means for Tesla, and it is far from being at a dead end.
Launching the legendary Model 2 at a lower price or as one of the options.
Regarding this, Li Jinyong said that Model 3 still has a large market, and launching Model 2 at a lower price at this time is not a good choice. The current market for Model 3, which is priced at 250,000 RMB, still has room for growth. Launching a Model 2 with a lower price would affect the sales of Model 3.
Li Jinyong said: “What Tesla needs to do now is to repair its relationship with consumers.” He further stated that a month’s decline alone does not prove anything, but if Tesla’s sales continue to be sluggish in the next few months, it proves that Tesla has a big problem in China. The trend of the decline or no longer growth of Tesla’s sales may continue for a period of time, and the decline of Tesla’s sales will also drive hesitant people to give up buying cars, forming a vicious circle.
After being educated by the market multiple times, the Tesla China team is gradually adapting to the market and launching related policies.
On May 25th, Tesla officially announced that it will open a platform for Tesla owners to inquire about their information in China. For the relationship between Tesla and consumers that urgently needs to be repaired, this may be a good start.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.