Tesla's plans for China are on a roll

Tesla Motors Inc, a US luxury electric-car maker preparing for a foray into China, posted its second consecutive profitable quarter, helped by record deliveries of its Model S plug-in sedan and stronger profit margins.

The Silicon Valley company, which expects to open a new showroom in Beijing by year's end, reported second-quarter adjusted earnings of 20 cents a share on revenue of $405 million. Analysts polled by Thomson Reuters expected the company to post a quarterly loss of 17 cents a share on revenue of $383 million.

In January, Tesla told reporters at the Detroit Auto Show that it would open its first showroom in China in the spring. The timing has now been pushed back to year's end, according to media reports in China. On Wednesday, China Car Times.com reported that the showroom will be located in the city's upscale Parkview Green mall and cover 8,000 square feet, three times larger than any Tesla store in the United States.

Tesla didn't comment on the Beijing dealership or China in the release. In the conference call with analysts after the results were released, Telsa said it would address its China plans when third-quarter earnings are announced. The company did say it launched its international expansion this week by delivering the first Model S vehicles to customers in Europe.

Tesla said it made 5,150 sales of its Model S vehicles in North America, exceeding the company's expectation of slightly more than 4,500 deliveries. Production jumped 25 percent to about 500 vehicles a week. The gross margin rose to 22 percent from 17 percent in the first quarter.

Overall, Tesla reported a loss of $30.5 million, or 26 cents a share, compared with a year-earlier loss of $105.6 million, or $1 a share. Excluding stock-based compensation and other impacts, Tesla reported an adjusted profit of 20 cents compared to a prior-year loss of 89 cents.

Recent spells of thick smog in Beijing and other Chinese cities have refocused attention on low-emission vehicles to rid China of a hazard to both human health and the country's economy. The State Council has called on the domestic auto industry to achieve production and sales targets of 500,000 pure-electric (battery-powered) and plug-in hybrid vehicles by 2015 and 10 times that number by the end of the next decade.

But given weak worldwide demand for electric vehicles, some analysts wonder how Tesla can generate sales in China. Sales so far have been limited mainly to government and corporate customers.

Although electric vehicle sales represent a small fraction of all vehicles sold globally, Tesla is aiming its critically acclaimed electric vehicle at wealthy buyers in China who have a strong appetite for expensive US goods. The starting price for Tesla's 60 kilowatt base Model S sedan is about $71,000.

Meanwhile, a trademark dispute could hamper Tesla's China push. Want China Times reported Tuesday that the "Tesla" trademark is already owned by individuals and the company is effectively blocked from introducing its brand to the Chinese market. The website quoted CEO Elon Musk as saying the company tried to purchase the trademark from owner Zhan Baosheng for $326,000 but he wanted 100 times that amount.

When a similar dilemma hit Apple Inc over its iPad trademark in China this year, Apple ended up paying $60 million to Shenzhen's Proview Technology, a maker of computer monitors, so it could introduce the iPad in China. Proview had asked Chinese authorities to order the removal of all iPads from store shelves in the country until the dispute was settled.

Although some observers have questioned Tesla's China sales strategy in light of individual buyers' aversion to electrics, the company's share price has more than doubled since it reported its first ever profit, going from a closing price of $59.50 on May 6 to $142.15 at Tuesday's close. The stock has more than quadrupled in the past year.

Tesla's shares have soared on news that the company paid off a US Department of Energy loan nine years early; announced an aggressive expansion of its battery-charging network; and unveiled its 90-second battery swap system, ostensibly mollifying potential buyers worried about having to schedule a much longer battery recharging break during a long trip. Tesla has said it plans to offer the battery swap option at locations around the US, including the charging stations it is adding over the next few years.

michaelbarris@chinadailyusa.com