Tesla Might Soon Catch a Break in China

For foreign auto makers that wish to operate in China, there aren’t any great options. A company either has to pay a tariff on imported cars or set up a joint venture with a Chinese company to make its cars locally, and that means also splitting the profits.

But new reports say China’s policy could soon change -- at least for companies that make electric vehicles -- and at least one analyst sees Tesla emerging as a big winner under the new rules. Were the joint-venture rule to be relaxed, “China could eventually be Tesla’s biggest source of revenue,” writes Piper Jaffray analyst Alexander Potter, given that there’s not much quality local competition in China’s electric-vehicle market. Foreign car makers, he adds, “are probably years away from releasing locally-built luxury electric vehicles.”

Under a joint-venture arrangement in China, a foreign car maker must give up its name, expose its technology to its partners, and share ownership, all likely reasons why Tesla has so far been hesitant to set one up. But new rules might give Tesla full ownership over its future Chinese operations.

“It seems possible that Tesla will be allowed to book 100% of the profit associated with locally-produced electric vehicles,” Potter writes.

China wants more electric vehicles on the road and was recently reported to be considering an eventual ban on gasoline-powered cars.

Big Picture: Tesla could be a big winner if China pulls back on its local ownership rule for car manufacturers.

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