TESLA HITS A BUMP AT SHANGHAI AUTO SHOW

Elon Musk and his electric car company Tesla have a large following in China－the world's largest vehicle market－much to the envy of rivals.

Tesla was the bestselling maker of such vehicles in China last year, and last month was its best in the country to date, with 35,478 cars sold, according to the China Passenger Car Association.

However, a number of potential customers are deciding against placing orders and some owners are refusing to drive their Teslas to protest the way a customer who complained about an alleged brake failure was treated at the Shanghai auto show.

On April 19, the opening day of the show, which is held every two years, a woman got on top of a Tesla Model 3 car and shouted that the brakes did not work. She was quickly dragged away by security guards, who attempted to hide her from visitors with open umbrellas.

Footage of the incident taken by onlookers generated more than 150 million views on Sina Weibo within hours.

A business owner in Beijing surnamed Cui said, "I feel embarrassed, and I am worried that my Tesla Model 3 has the same problem, so I'm driving my Audi these days."

The protester, who was detained by police for disturbing public order, owns a Tesla Model 3 in Henan province, and her father was involved in a traffic accident in February while driving the car.

The woman claimed that the crash was caused by a technical problem with the car, but Tesla insisted the accident was due to excessive speed.

Soon after the protest, Grace Tao, a Tesla vice-president, told reporters: "There is no possibility Tesla will compromise ... I think she (the protester) is quite professional ... She has contributed to most of the negative news about Tesla recently."

The remarks made by Tao, who joined Tesla in 2014, escalated the protest.

Faced with mounting pressure, the company softened its stance, issuing a series of late-night statements. On April 20, it put out an apology and said it was carrying out a "self-inspection". Next day, it said it was "working with regulators for investigation".

On Thursday, Tesla disclosed data about the vehicle that crashed, generated before the accident. The data have not been independently verified.

Events took another turn three days later, when the woman protester, surnamed Zhang, was released from detention.

In a Sina Weibo post, Zhang said Tesla did not contact her or her family until the morning of her release from police detention. She added that the company should not disclose data about her vehicle without her consent, saying this was an invasion of privacy.

Yang Zhongyang, a senior auto reporter at Economic Daily, said the criticism leveled against Tesla centers mainly on how it responds to complaints, rather than referring to the quality of its vehicles.

In a news analysis, Reuters said Tesla defies industry convention, as it is based on a corporate culture that rarely admits mistakes.

The company has long been accused by customers of responding in an irresponsible manner to complaints about incidents such as battery fires, unexpected acceleration and failure to provide software updates.

Only two months ago, Tesla promised to "strictly abide by Chinese laws and regulations and always respect consumer rights "after the State Administration for Market Regulation urged it to heed consumer complaints.

Tu Le, analyst at research company Sino Auto Insights, said, "There have been constant complaints on social media about Tesla in China regarding quality and service issues, but they seem to have been largely ignored by the local team until Tuesday (April 20)."

Plant deal signed

Tesla cars are highly popular in China, accounting for 30 percent of the company's sales globally.

Three years ago, the authorities, customers and analysts enthusiastically greeted the company's decision to build its first overseas plant in China.

Tesla signed a deal with the Shanghai government in 2018, becoming the first international carmaker to build a plant in China, months after the country announced it was further opening up its auto industry.

With loans from local banks, work started on the $2 billion plant in January 2019. Within nine months, it began trial operations, but without Musk taking to a sleeping bag in the factory to supervise progress, as he has frequently done in the United States.

Tesla said it was about 65 percent cheaper to build the plant in China than an equivalent facility in the US.

In an interview with reporters when trial production began, Tao, the vice-president, said the company had made the correct decision.

"Thanks to the outstanding business environment in Shanghai, many of our innovative ideas have become realities," Tao said.

Musk is happy with Tesla's operations in China, particularly the Shanghai factory, which he describes as a "template for future growth".

Yale Zhang, managing director of consulting company Automotive Foresight, which is based in Shanghai, voiced great expectations for the company before it started production locally, saying it would help spur growth throughout the sector.

He said Tesla would help force incompetent manufacturers out of business－some of which have been relying too heavily on government stimulus packages－and inspire serious and ambitious companies to do a better job.

Chinese electric vehicle startups continue to be billed as Tesla rivals by international media, and the company has also done a great deal to boost the sector's appeal.

However, Chinese rivals are doing a much better job in terms of customer relations.

Take Nio for example. Some 50 percent of its sales are due to recommendations from people already owning vehicles made by the company.

Last year, despite the COVID-19 pandemic, Nio held about 100 events, where executives from the company sat down and talked with vehicle owners. Questions were answered by the company's founder and CEO William Li and Nio President Qin Lihong.

When Nio's 100,000th vehicle rolled off the assembly line this month, Li said, "The decisive factors in this industry are how good your products and service are. We will increase our investment in research and development and service."

Technology companies, including Huawei, are joining the competition and are expected to eclipse Tesla in terms of driver-assist functions.

The first vehicle to feature Huawei's operating system, chips and autonomous driving solutions was shown at the Shanghai auto show this month.

A video clip showed the model navigating through urban traffic without the help of a driver. Named Huawei Inside, the cars will be delivered from the end of this year.

Xu Zhijun, deputy president of Huawei, said the vehicles can operate safely for 1,000 kilometers, "much better than Tesla's".

International manufacturers are speeding up efforts to introduce their electric cars to China.

As the protester was dragged away from Tesla's booth, Volkswagen Group China CEO Stephan Woellenstein was delivering a speech in Chinese, presenting the latest electric vehicles made by the company.

In the same pavilion, Volkswagen's premium arm, Audi, reaffirmed its ambition to launch a "golden decade" with its local partners in China. An electric SUV concept named after the city of Shanghai was a highlight of its booth.

Also on April 19, General Motors' Cadillac debuted its LYRIQ crossover in Shanghai, which features Super Cruise hands-free driver assistance, including lane change on demand.

The company said the system can be used on nearly 300,000 km of highways across China, which is the brand's largest market worldwide.

Felix Weller, a senior executive for Cadillac's operations in China, said the model would be delivered early next year.

Ford, the second-largest vehicle maker in the US behind GM, launched its electric Mustang Mach-E early this month. The company said its main rival is Tesla's Model Y.

Roy Lu, director of the Gasgoo Auto Research Institute, a think tank for the industry, said Tesla is pushing potential customers away.

"The market is so competitive, and Tesla shows no respect for car owners who complain about its vehicle quality. Surely its sales and reputation will be hurt," Lu said.

Tesla's troubles in China underscore a problem that some of the company's senior executives have acknowledged, although the difficulties mainly relate to its North American business.

Tesla Chief Financial Officer Zach Kirkhorn told investors in January, "Service expansion is really important to the future strategy of the company."

Top FDI recipient

As the world's second-largest economy, China is an attractive market for carmakers and other companies.

The country overtook the US last year to become the biggest recipient of foreign direct investment, and this momentum is continuing.

China's use of foreign capital rose by 43.8 percent year-on-year to $44.86 billion in the first quarter of this year, according to the Ministry of Commerce.

Denis Depoux, global managing director at consultancy Roland Berger, said at the Boao Forum for Asia this month that foreign companies are viewing the business environment in China quite favorably.

At the forum, Sean Shan, Takeda China president, said the global biopharmaceutical company is impressed by the local operating environment.

"Progress has been made, particularly in our industry, to advance regulatory reform in China, which supports innovative companies, both local and foreign," Shan said.

In an interview last month, Jochen Goller, BMW Group Region China president and CEO, said the carmaker is increasing investment in China, which is its largest market and home to its biggest research and development network outside Germany.

BMW's iX3 electric SUV is being manufactured in China for the global market. Since 2009, BMW has invested more than 64 billion yuan ($9.81 billion) to build vehicle and battery plants in Shenyang, Liaoning province.

Goller said, "These latest moves by BMW in China are based on our confidence that we will strive to seize the greater opportunities brought by a more open China."

Last month, Musk attended the China Development Forum online. He told reporters China would become Tesla's biggest market and be where the company manufactured most of its vehicles.

Experts commenting on Tesla's perceived arrogance in dealing with customer complaints said what matters most in this case is building a law-based, open and fair market system for all enterprises and customers－regardless of whether they are domestic or foreign. This would enable inferior products, monopolistic and other behavior that harms customer interest to be detected and punished.

Zhang Yansheng, chief researcher at the China Center for International Economic Exchanges, said: "China has been stepping up efforts to build a more open and fairer business environment that applies high-level international standards for all market entities. Infringement of market regulations must be made accountable, but only within the framework of laws and international rules."

Tu Xinquan, professor and dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing, said improper behavior can occur at any enterprise. It is important to improve government regulations and market governance to detect and discipline those who breach rules. Whether such violators are domestic-or foreign-funded should make no difference.

The Central Commission for Discipline Inspection said international companies are welcome in China but they must obey the country's laws and respect Chinese customers.

Liu Zhihua contributed to this story.