Tesla Motors, Inc. (TSLA) is allying with China’s second largest mobile carrier China Unicom to develop a network of charging stations in the country. According to the deal, the two companies will jointly set up 400 charging stations at China Unicom stores in 120 Chinese cities. Additionally, they will build Supercharging stations in 20 cities.
China Unicom will provide the space for the stations, while Tesla will provide the charging equipment. However, the charging stations will only provide charging facility to Tesla’s vehicles. Moreover, the service will be provided free of cost.
Tesla has been focusing on gaining a share in the lucrative Chinese market. The company started delivering vehicles in the nation from Apr 2014. Moreover, it has plans to unveil 10 to 12 stores in China by the end of 2014, out of which its flagship store in Beijing was opened in Nov 2013. The electric carmaker also hopes to establish a Supercharger network in the nation.
Tesla also has deals with Chinese property developers Soho China Ltd and China Yintai Holdings Ltd to build charging stations in the nation. However, the deal with China Unicom is the automaker’s largest investment in charging stations in the nation.
Apart from being the world’s largest automobile market, China also offers attractive growth opportunity for Tesla as the Chinese government is trying to increase the popularity of electric cars in the nation to reduce the pollution level of its cities as well as increase its energy independence. The country already offers significant subsidies on purchase of electric cars and has limited the number of gasoline vehicles that can be sold in certain cities, in order to check pollution.
Recently, the government also made it mandatory for 30% of government vehicle purchases to be electric vehicles (EV). Further, China announced a waiver of 10% purchase tax on domestic and imported electric, plug-in hybrid and fuel-cell vehicles in the nation from Sep 2014 to Dec 2017.
The Chinese government aims to have 5 million green vehicles on the road by 2020. However, shortage of charging stations is one of the biggest hurdles in increasing the popularity of electric cars. Apart from Tesla, BMW is also building charging stations in the nation.
Tesla expects China to account for 30–35% of its global sales growth in 2014. It expects sales in Europe and Asia to be double the sales in North America by the end of 2014.
Currently, Tesla carries a Zacks Rank #2 (Buy). Other auto stocks worth considering include CarMax Inc. (KMX), O'Reilly Automotive Inc. (ORLY) and Fox Factory Holding Corp (FOXF). While CarMax sports a Zacks Rank #1 (Strong Buy), O’Reilly and Fox Factory have a Zacks Rank #2.
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