Breaking into the Chinese market is critical to the
long-term success of any international company.
Consumer spending in China is set to double by 2030,
to nearly $13 trillion - the same amount Americans currently spend.
Yet many foreign firms have a hard time navigating a market as complex as China.
When Amazon entered China in 2004 by acquiring the Chinese shopping site
Joyo.com for about $75 million, it believed it could replicate its stunning success in America.
Unfortunately for Jeff Bezos, his foray into East Asia didn’t go as planned.
Amazon shut down its Chinese domestic e-commerce marketplace in 2019.
Yet since Elon Musk set up a Tesla Gigafactory in Shanghai,
demand for his electric cars has been booming.
China is responsible for producing half of Tesla’s cars worldwide in 2021.
China rocks in my opinion. The energy in China is
great. People there – there’s like a lot of smart, hard-working people.
Selling electric cars and selling everyday goods are obviously two different industries.
Yet one can argue you CAN make a comparison. Both are American
companies that tried to make inroads in China but adopted very different strategies.
Despite entering China early, Amazon struggled to compete against Tmall.com,
owned by Alibaba Group, which has since grown to become the country’s leading e-commerce platform.
Amazon’s market share fell from 15 percent in 2011….to less than 1 percent by 2018.
Nor could Amazon China compete with the other dominant player, JD.com.
Part of the problem was that Amazon failed to innovate in China.
When Alibaba introduced its own payment platform, Alipay, in which people could pay digitally
for products they ordered on Tmall, Amazon was still accepting cash from buyers upon delivery.
Amazon also failed to understand what appealed to Chinese shoppers.
Alibaba’s annual shopping extravaganza Singles Day was a huge hit. Amazon didn’t
have a counter as its annual discounted event Prime Day didn’t exist yet.
The websites of Tmall and JD were also very colorful and festive.
Amazon’s website looked rather bland - mirroring its other home pages around
the world. Americans prefer a minimalist design, which is not the case in China.
It didn’t help that Amazon China relied on support from company headquarters in
Seattle and was slow to respond to market signals.
The company also turned off Chinese sellers.
Sellers were used to paying 2% to 5% of their sales to Alibaba in addition
to paying for ads to make their listings more prominent. However,
Amazon executives were not a fan of the advertising model and instead,
charged Chinese sellers more, 10% to 15% of sales. So naturally, they flocked to Alibaba.
Perhaps the biggest mistake Jeff Bezos made in China…was that he failed to
understand the importance of forging good relations with the government.
As Brad Stone writes in his book about Amazon’s growth called Amazon Unbound,
“Amazon.cn executives from that time said that Bezos was totally uninterested in
understanding the inner machinations of the Chinese government, cultivating ties
with Chinese leaders, or using his budding fame to help Amazon’s cause in the country…”
Elon Musk didn’t make the same mistake when he opened Tesla’s first factory in China in 2019.
Musk has consistently made an effort to woo Chinese officials.
Taking China’s ambassador to the U.S. for a drive in a Model S Plaid - which the ambassador
described as a “smooth ride”. It’s unclear if they tried plaid mode - the fastest acceleration mode.
On his Weibo account, Musk frequently praises
China’s space program and economic growth over the past three decades.
The Chinese government has been very supportive of Tesla.
In 2019, Tesla became the first foreign automaker to open an independent factory
in China. Normally, foreign carmakers must team up with a Chinese partner.
There apparently was no excessive red tape as Tesla built its Shanghai Gigafactory in record
time: going from permits to a finished plant in just 168 working days or about six months!
Tesla was one of 600 businesses that the Chinese government deemed important enough
to open first amid the lockdown in Shanghai in the spring of 2022.
Authorities arranged buses to transport thousands of Tesla workers and helped
carry out the required disinfection to curb the spread of COVID-19.
Musk has heaped praise on Chinese workers, like in this interview with the Financial Times.
There’s just a lot of super talented, hardworking people in China that are who
strongly believe in manufacturing. They won’t just be burning the midnight oil,
they’ll be burning the 3 a.m. oil. They won’t even leave the factory type of thing,
whereas in America, people are trying to avoid going to work at all.
While Amazon China failed to get close to Chinese consumers,
the minimalist website being one example, Musk has really tried to embrace Chinese culture.
When he posted an ancient Chinese poem about the importance of getting along,
on his social media accounts, it went viral, as people discussed what he meant.
While Amazon China relied on Seattle for support, Tesla China is not simply a branch of Tesla.
It’s set up to do original research and development work.
Tesla opened a research center and a separate data
center in Shanghai in 2021. Both are located near the Gigafactory.
Musk’s push for EV development conveniently aligns with Chinese
president Xi Jinping’s pledge to make China the leader in electric innovation.
Beijing aims to have 40 percent of vehicles sold in China be electric by 2030.
And Elon Musk is the one person who can get them there.
It’s no wonder Beijing has been showering Tesla with goodies such as cheap land,
low-interest loans, and tax incentives - exempting Tesla cars from a 10% purchase tax.
Within three years of opening, Giga Shanghai is now on track to produce 900,000
cars a year if recent monthly deliveries are any indication.
And it’s building another assembly line near its existing plant,
which could add another half a million Model 3s and Model Ys a year.
According to Tesla, this will turn Shanghai into "the world's largest vehicle export hub".
Musk has remained popular in China despite deteriorating relations with
the U.S. I’ve made a series of videos recently on how Washington is trying to
keep the world’s most critical chip technology out of Beijing’s hands.
There’s also the issue of large-scale human rights abuses in the country.
So, it’s a delicate balance for Musk to straddle the geopolitical fault lines.
But Elon Musk needs China.
Chinese sales helped propel Tesla to its first full year
of profitability in 2020 - 18 years in the making.
And China needs Elon Musk.
Chinese leaders have reportedly grown frustrated with the performance of domestic electric vehicle
companies, and believe Tesla can lead the transition to an electric future.
Although, Chinese companies are starting to catch up.
In the third quarter of 2022, BYD sold 537,164
new energy vehicles compared to Tesla’s 343,830 vehicles.
However, only about half of BYD’s car sold were fully electric as
new energy vehicles also include plug-in hybrids and hydrogen fuel-cell vehicles.
So Tesla is still ahead in all-electric vehicle sales.
For now, Tesla is enjoying a fate that is very
different from Amazon’s in the world’s most populous country.
Tesla’s success lies in its ability to innovate quickly. As Musk has said time and time again,
what matters is the pace of innovation.
Well, another company is innovating an everyday product.
I used to carry around quite a bulky wallet but wanted something that was sleek and slimmer.
So it was a no-brainer for me to pick up an Ekster wallet.
I started using an Ekster wallet before they approached me about sponsoring some of my videos.
I especially like Ekster’s AirTag wallet - there’s a convenient spot
for my Apple air tag so I know where my wallet is at all times.
No matter what model of wallet you get - can access all your cards with a click of a button.
I also really like this carbon fiber wallet Ekster sent me which I think just looks great. They’ve
also got a solar-powered tracking device you can get along with it.
Ekster has a huge selection of wallets on their website - including s a vegan leather
smart wallet made with recycled material sourced from scrapped car windshields.
If you’d like to try out an Ekster wallet for yourself or gift one to family and friends, you
can get 20% off if you use my custom link: https://shop.ekster.com/newsthink.
shop.ekster.com/newsthink. The link is in my description and pinned comment.
Thanks for watching. For Newsthink, I’m Cindy Pom.