Tesla/China: software glitch charges up local rivals

Last year, Teslas were China’s best-selling electric cars. Now a potentially dangerous problem has prompted the government to order software repairs to almost 300,000 of those vehicles. Officials say drivers can accidentally engage the autopilot, triggering acceleration. Bad news for the US electric car maker creates opportunities for fast-growing local rivals.

Foreign automakers have become a formidable presence in China, accounting for 57 per cent of all new-energy vehicle sales this year. Tesla, which earns almost a third of its sales in China, has the lion’s share.

That success attracts critical attention from officials, already sensitive of the influence of homegrown tech giants. The cars have reportedly been banned from entering government complexes. The government has drafted new regulations controlling how vehicles collect data with cameras and sensors. Tesla has responded by setting up a local data centre.

Tesla’s heavy reliance on the market has always been on a fragile footing. Customer loyalty to car brands has historically been low in China.

Buyers of electric cars are especially easy to sway through price and new features. Volkswagen, for example, makes China’s best-selling foreign petrol car brand. But that has not stimulated interest in its electric cars. Even as electric vehicle sales rose 177 per cent to a record in May, VW’s electric ID series in May sold just 1,213 units, down from April, according to auto consultancy LMC.

Alibaba-backed Xpeng and Nio should benefit from Tesla’s woes. In May, Xpeng’s deliveries increased 483 per cent compared with the previous year. Nio’s doubled. Nio shares have returned more than 500 per cent in the past year while Xpeng’s have surged 100 per cent. Both trade at an enterprise value to forward sales ratio of 11 times, in line with Tesla.

Tesla’s “recall” — in reality owners can upgrade cars at home — will not deter diehard fans from buying a new Shanghai-made Model Y. But broader negative signalling from Chinese authorities should prompt investors to look under the hood of their valuation models.

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