Tesla Faces Major Roadblocks in China

Joe Goldman  |

Tesla Motors (TSLA) was slapped with a trademark infringement lawsuit by a Chinese businessman on Tuesday, an ongoing problem that was thought to be resolved months ago. Additionally, Beijing’s massive rollout of charging stations will not be compatible with the Tesla vehicles, a major blow for Tesla’s growth plans in China.

It could be coincidental that these two nuisances are happening simultaneously. Yet, it’s also possible that China is intentionally hindering Tesla’s ability to grow market share.

Tesla Trademark Infringement

Chinese businessman Zhan Baosheng is suing the California carmaker because he claims ownership to the “Tesla” trademark in China. Zhan is suing for 23.9 million Yuan ($3.85 million) and is demanding that Tesla shut down all of its Chinese operations, including showrooms, charging stations, marketing programs, and sales efforts. Tesla made its first delivery in April and was under the impression it had resolved the dispute in January.

The suit is reminiscent of Apple’s (AAPL) trademark infringement dispute in China, when a Chinese company sued Apple for $38 million in “damages,” claiming that they did not have the rights to the name “iPad” in China. Apple wound up paying $60 million to ensure a seamless iPad launch.

The multi-billion dollar potential of the China’s car market hints that Tesla will certainly settle the case. The settlement payment, however, could be enormous depending on how anxious Tesla is to push this issue aside and ensure a smooth entrance into China. Uncertainty also surrounds Zhan’s demands pertaining to halting Tesla’s operations.

Compatibility Problems in Beijing

Authorities in Beijing are planning to install 10,000 ultrafast electric vehicle-charging stations throughout the city by 2017–a plan that was initially thought to be enormously beneficial to Tesla. However, it turns out that this project could significantly hinder Tesla’s growth prospects.

According to Marketwatch, the new charging stations will not be compatible with Tesla’s existing technology. Thus, if Tesla cannot figure out a way to circumvent this technological gap, it will have a huge competitive disadvantage in the region.

It’s possible that Beijing simply uses different circuits, power grids, and other adapters than Tesla anticipated. On the other hand, this could be a strategic move to oust Tesla as China’s hot electric vehicle. A handful of Chinese carmakers produce electric cars, so perhaps the government wants to give Chinese EV producers the upper hand.

Tesla remains one of the hottest companies on earth, but these new developments in China could prevent it from seizing a sizable piece of the enormous Chinese car market.

Shares closed lower on Tuesday, falling 1.61% to $219.07 on higher than normal volume.


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