Tesla/China: recalls draw attention at a risky time

Tesla chief Elon Musk’s bet on China has paid off handsomely. The country accounted for a quarter of its total sales last year. But like all foreign companies in China, that success has fragile foundations.

Tesla is recalling more than 80,000 cars in China due to software and seatbelt issues, Chinese regulators said on Friday. That is the equivalent of just a month’s output from its Shanghai plant. It is unlikely to leave a noticeable dent in the around $4bn of quarterly sales it makes in the country.

But the timing is bad. It is facing criticism from local authorities and the media. That followed a recent fatal accident and a much bigger recall of 200,000 cars in December over safety issues.

Tesla’s record-breaking sales in China, which hit an all-time high in September, have attracted growing scrutiny from officials. Its success highlights the comparatively poor profitability performance of the local electric car industry which the government has actively supported. The manufacturers’ margins have shrunk amid rising raw material costs.

Meanwhile, Teslas are reportedly barred from military complexes and other sensitive areas as a result of security concerns. Military staff and employees of key state-owned companies are said to be restricted from using Tesla cars.

Tesla’s formidable success — as a foreign company — is not the norm in China. US companies across a wide range of industries have struggled to expand in the country over the past two decades. Exits, following years of investment, have been the norm. Amazon, Google, Best Buy, Uber, LinkedIn, Macy’s and eBay are among those that beat a retreat.

Tesla is far too invested in China to have the option of following its compatriots by pulling out. Its Shanghai plant, which can turn out around 1mn cars a year, is expected to play a crucial role supplying other markets in Asia and Europe. Protecting its reputation in the eyes of Beijing must now take priority over growth.