Have Elon Musk’s Chinese Fans Fallen Out of Love With Tesla?

Elon Musk (L) walks with Shanghai Mayor Ying Yong during the ground-breaking ceremony for a Tesla factory in Shanghai on January 7, 2019. STR/AFP via Getty Images

Tesla’s future in China, its largest overseas market, looks increasingly shaky amid a sales slump, lingering U.S.-China trade tensions and the occasional, unexpected PR turmoil.

After rallying over 700 percent in 2020, Tesla stock has been trading at its lowest level in recent months. On Tuesday, shares tumbled 7.5 percent in premarket trading after analysts reported that the electric carmaker had sold only 25,845 vehicles in China in April, a 27 percent slide from March and underperforming industry-average trend. (Overall EV sales in China fell 12 percent from March.)

While April’s delivery number is a solid growth from January (15,484 vehicles) and February (18,318 vehicles), analysts believe that Tesla’s appeal among Chinese consumers has taken a hit due to the company’s poor handling of a recent PR mishap.

In early April, a woman who claimed to be a Tesla customer staged a protest at the Auto Shanghai Expo, climbing atop a Tesla Model 3 at the company’s booth and shouting about Tesla’s faulty brakes. She was quickly dragged away by security guards, but photos and videos of the incident went viral on the internet. The protestor was the daughter of a Model 3 owner who was injured in a February crash. Tesla China later issued a defiant statement saying the crash was caused by speeding, not faulty brakes, and that the company wouldn’t compromise with “unreasonable demands.”

“Tesla’s share gains stagnated… during the month as the company faced a handful of negative PR issues in China stemming from well discussed safety issues, military spy noise and the protest at the Shanghai Auto Expo,” Wedbush analyst Dan Ives wrote in a note to clients Tuesday.

The military spy noise refers to reports from March alleging that China has banned Tesla cars on its military premises due to security concerns over cameras installed on the vehicles.

“Clearly, Musk & Co. need to play nice in the sandbox with Beijing and smooth out the PR issues in the region which have been a black eye for Tesla over the last month and clearly impacted China sales negatively in the month of April,” Ives wrote.

Citing anonymous sources, Reuters reported on Tuesday that Tesla halted a plan to buy a plot of land near its Shanghai Gigafactory to expand manufacturing capacity.

Tesla originally planned to expand exports of China-made Model 3 to more markets, including the U.S., the sources said. But with the 25 percent tariffs on imported cars under former President Donald Trump still in place, Tesla now wants to limit China production intended for export.

Tesla’s Shanghai factory has the capacity to make up to 500,000 electric cars per year. It was originally designed to only supply the Chinese market. But Tesla began shipping China-made Model 3 to Europe last year as COVID-19 disrupted production in the U.S.

The new land would have boosted Tesla’s manufacturing capacity by another 200,000 to 300,000 cars, per Reuters.

Tesla has scored multiple special treatments from local governments since it entered the China market in 2019, including cheap loans and generous tax breaks. Tesla is also the only foreign automaker that’s allowed to operate in China without forming a joint venture with a local company.

“The relationship is much too mutually beneficial and financially intertwined to be dissolved or undermined,” Bloomberg columnist Anjani Trivedi wrote in an op-ed in April. “China gives Tesla more than a pot of growing revenue… investigations may come and go but Elon Musk’s ties with China are here to stay—or at least, as long as the interdependence lasts.” Have Elon Musk’s Chinese Fans Fallen Out of Love With Tesla?