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Tesla Isn't The First EV Maker to Initiate A China Recall

Tesla's China (and to a smaller extent US operations) have faced a surfeit of bad news recently. Multiple global and domestic media publications over the last few days have reported that Tesla will recall 285K Model 3s, most of which were domestically produced, over a fault that could cause the vehicle to unexpectedly activate its cruise control system. Tesla users won't even have to visit a dealer to fix the problem; all they need to do is download a software update. (An article about Tesla's recall from the Wall Street Journal is reposted at the bottom of this post)

A few months ago, the firm faced quality complaints as well as allegations that the cameras and sensors embedded in the vehicles could be used for malicious surveillance.

While these headlines certainly look bad, cumulatively these incidents are unlikely to hurt the firm's prospects in the Chinese market over the long term, unless the stream of bad news continues and damages public opinion. However, it's important to note that many customers preorder their cars several months in advance, so if these incidents have led to a sales slowdown, it won't be apparent until later this summer. 

When one considers all the bad news from Tesla, it's important to remember that previously NIO also faced a period of negative publicity and even questions about whether the company would collapse. In June of 2019, the firm had to recall almost 5000 cars over defective batteries, which exceeded the total of 3553 cars delivered in Q2 of 2019.

A story from the South China Morning Post about NIO's 2019 recall is available below:


The vehicle recall somewhat impaired NIO's manufacturing capability and the stock sold off notably over 2019. The company's shares opened 2019 at around $6 USD per share and by the time of recall were priced around $2.50 USD. The share price graph since the company listed is displayed below. 

However, the company sold multiple rounds of convertible bonds over the proceeding months and also received large credit lines from state owned banks. (

Over 2020 the firm stabilized it's operations, continued to raise capital through convertible bond and equity issuance, and in Q2 2020, the firm sold 10.3K cars, which was almost 3X of the same period in 2019. In Q1 2021, the firm sold about 20K cars.

Business in general continues to improve for the 4 eminent EV makers, Tesla, NIO, Xpeng, and Li Auto. Statistics released from China's Ministry of Industry & Information Technology reveal that in May 2021, total sales of EV cars were about 217K, which was a 1.6X increase from the same month last year. (Do note 217K includes hybrids, pure electric was 179K) Total passenger vehicle sales in May 2021 in China were 1.64 million.  (

Of these 217K electric cars sold in May 2021, Tesla sold about 22K, NIO sold 6.7K, Xpeng sold 5.7K, and Li Auto sold 4.3K for a cumulative total of about 39K. Essentially, NIO's experience executing a relatively large recall, overcoming a financing crisis, and subsequently being able to rapidly expand sales is illustrative of Tesla's current troubles and a reason to be skeptical of this short term bad news denting Tesla's ability to grow sales in China over coming years. However, the firm needs to be careful and avoid further publicity. 

On a side note, it's interesting to consider, of the aforementioned 217K electric cars sold in China in May, where are the rest of the cars being sold coming from? Namely the 178K other EVs?

It's a bit difficult to ascertain exact statistics, but it's estimated that most of the other EV's are being sold at much lower price points than the cars marketed by Tesla, Nio, Xpeng, and Li Auto, which position their cars at luxury price points that often well exceed CNY 300-400K and above.

Well according to the China Association of Automobile Manufacturers, and reported by Caixin the top selling electric car in China in May 2021 was the Hongguang Mini with sales of 29.7K units (Caixin is really a personal favorite and their local finance/business news is excellent in both scope and quality, link: A picture of the convertible version of the Hongguang Mini is shown below:

The author is partial to this fine automobile. You can see it's official website at ( This car retails from 28.8K CNY, which is around $4.5K USD, although it's assumed the convertible retails for a premium.

This car is manufactured by a subsidiary of SAIC(上汽集团:SH600104) which is a massive state owned company that operates 11 brands, and in 2020 manufactured an aggregate total of 5.6 million vehicles, although it's unknown what proportion of these vehicles were commercial vehicles. Total passenger car sales in 2020 in China were about 20.2 million, and total automobile sales, including commercial, were around 25.3 million. So SAIC is producing around 20%-25% of all cars manufactured in China. GM has a partnership with SAIC. It should be noted SAIC's unit sales of vehicles dropped 10% in 2020. SAIC's sales statistics are available at the following link ( SAIC's aggregate monthly sales of EV's are unclear. 

Electronics manufacturing giant BYD (HK:1211) also operates it's own EV brand and is responsible for a substantial share of EV auto sales and in May 2021 sold about 31.6K passenger EVs, 18K of which were pure electric (BYD also manufacturers electric buses). Geely Auto (HK:0175) sold 6.2K EVs in May.

So adding up BYD, Geely, and SAIC's Mini EV is another 67K EVs. So it's still unclear where the final 110K EV sales are coming from. Due to the firm's massive scale and Chinese government edicts about increasing the proportion of EVs sold in the market to 20% by 2025, it's estimated by the author that a substantial portion of the remaining 110K EVs are being sold by SAIC and other state owned automakers, as well as a long tail of new EV manufacturers. As a state owned firm, SAIC has to keep policy in mind as it plans its manufacturing. 

Furthermore, BMW, Mercedes, and Audi collectively sold 2.2 million cars in China last year and Toyota sold 1.8 million. Each of these companies is already distributing electric cars in China, so in conjunction with the state owned automakers, they most likely account for a substantial portion of the remaining EVs. Expect these German automakers, along with Toyota & Lexus, to continue the expansion of their EV model lines. 

For further reading, Bloomberg also recently wrote a really in-depth article two weeks ago on NIO

The Wall Street Journal's article is included for reference below:

Eva Xiao June 26, 2021

Tesla Addresses Safety Issue in More Than 285,000 Vehicles in China

Tesla Inc. is addressing a safety issue in more than 285,000 passenger vehicles in China—including more than 90% of locally made vehicles sold by the company—associated with their cruise-control system, the country’s market regulator said.

The fix, which the State Administration for Market Regulation called a recall, requires affected Tesla customers to upgrade their cruise-control software remotely and doesn’t require going to the dealer, the Chinese regulator and company said Saturday.

The recall of the U.S. company’s automobiles came after an investigation into possible defects, which found that their cruise-control system could be accidentally activated and potentially result in an unexpected speed increase, the regulator said.

The recall includes 249,855 Model 3 sedans and Model Y compact crossover vehicles manufactured by Tesla’s Shanghai plant, as well as 35,665 imported Model 3 cars, it said.

The market regulator also said it received a request from Tesla a few days earlier for the recall, which affects vehicles produced between December 2019 and June 2021.

“We apologize for the inconvenience caused by this recall to all car owners,” Tesla said through its official social-media account on Weibo, China’s Twitter-like platform. “Tesla will continue to improve safety in strict accordance with national requirements.”

A Tesla spokesperson said the company declined to comment further.

The recall adds to the electric-car maker’s woes in the Chinese market, where consumer confidence has already been rattled after a run of bad publicity over the company’s handling of customer complaints and perceived quality issues.

The recalled autos manufactured in China account for 93.7% of all sold Tesla vehicles that were made locally at the company’s Shanghai plant, according to figures released by the China Passenger Car Association. Tesla doesn’t publish its own monthly sales or production figures.

In April, Tesla faced a backlash when one of its customers staged a protest at Auto Shanghai, China’s premier auto-industry exposition, by shouting allegations about faulty brakes on Tesla vehicles. The incident prompted the company to issue a public apology and pledge to set up a customer-satisfaction unit as it assured buyers that it takes quality concerns seriously.

In February, Tesla was summoned by Chinese authorities citing consumer complaints about quality issues in a rare rebuke for the company, the first foreign auto maker to operate a wholly owned plant in China. Chief Executive Elon Musk has also had to reassure Chinese officials and consumers that Tesla cars couldn’t be used to spy on China.

Until its recent difficulties, Tesla had overwhelmingly been seen as a prestigious brand in China, boosted by the popularity of Mr. Musk, who has said that China’s fast-growing market will become the company’s largest. China currently hosts Tesla’s only operational plant outside the U.S. The vehicle maker won approval for its Shanghai factory in 2018 despite the deterioration of U.S.-China trade relations under then-President Donald Trump.

However, the adverse publicity due to quality concerns has led some Tesla owners and potential buyers to walk away. On Weibo, the recall prompted renewed criticism of the company, which some Chinese internet users called “arrogant.”

“The problem of brake failure has not been settled, and now there is a danger of sudden acceleration?” one user wrote.


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