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Despite A Surge In Sales, Tesla Is Considering A Rethinking Of Its China Retail Strategy

Despite A Surge In Sales, Tesla Is Considering A Rethinking Of Its China Retail Strategy
Tesla is rethinking how it sells electric vehicles in China, its second-largest market, and is considering closing some showrooms in flashy malls in cities like Beijing, where traffic was reduced due to COVID restrictions, according to two people familiar with the plans.
The shift would place a greater emphasis on stores in less expensive suburban areas that can also provide repairs, as the company strives to meet Elon Musk's goal of improving service for existing customers, many of whom have complained of long delays, they said.
As part of that push, Tesla is looking to hire more technicians and other service personnel in China, according to one of the sources. As of Thursday, Tesla's China recruitment website listed more than 300 service job openings.
Musk said on Twitter last week, in response to a Tesla owner in Texas who complained about having to wait a month for his vehicle to be repaired, that he had made "advancing Tesla service to make it awesome" a top priority.
Unlike other automakers, Tesla owns all of its stores and does not rely on dealers. It also sells cars on the internet. This has given it more leeway in adjusting a retail strategy that was initially modeled after Apple's stores.
According to the China Passenger Car Association, the US automaker sold 400,000 China-made Model 3 and Model Y vehicles in the first eight months of the year, with 60% of them sold locally. This was a 67% increase over the previous year.
According to one analyst, the change in Tesla's approach in China, where it has become the second-largest EV brand behind BYD (002594.SZ), reflects a recognition that it needs to build customer loyalty now that it has established its brand in the world's largest car market.
"It's not necessary to open showrooms in expensive shopping malls, especially when the repair business has become lucrative," said Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight.
"It makes better sense to keep only one or two showrooms downtown to keep the brand positioning but move more to suburbs.”
Tesla opened its first store in central Beijing in 2013 and now has over 200 locations across the country where potential buyers can view models and schedule test drives.
However, because they are in high-rent areas with limited space, more than half of the stores do not provide maintenance services. This includes Tesla's inaugural stores in Beijing and Shanghai.
According to a Reuters count based on Tesla's China website, more than half of Tesla's showrooms in seven of China's largest cities, including Shenzhen and Chengdu, are now in downtown areas.
Tesla, like other companies, has seen store traffic severely disrupted by China's tough approach to COVID-19 containment, which has included lockdowns of varying scope and duration, including in Shanghai, where it has a factory.
Reuters was unable to determine how many urban showrooms Tesla was considering closing, how many new locations in fast-growing suburbs could be opened, or the cost of such a shift.
In China, the carmaker has been the subject of a slew of customer complaints and lawsuits, including a well-publicized incident last year in which an irate owner clambered atop a Tesla at the Shanghai auto show to protest the company's handling of her complaints about faulty brakes.
The incident drew widespread attention in China, prompting state media outlets to criticize the company.
Tesla later apologized to Chinese customers for failing to respond to their complaints on time and promised to review its service operations.
Tesla's Chinese EV competitors have taken a mixed approach to retail distribution. BYD and Xpeng rely on third-party dealers in addition to self-run stores.
Nio, like Tesla, operates a network of prominent urban stores in China. It has also invested in door-to-door service, dispatching workers, many of whom were recruited from the hotel industry, to pick up cars for repairs and return them when the work is finished.

Christopher J. Mitchell

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