Carmaker Tesla wins China fans with 'fair' price strategy

Tue Feb 4, 2014 4:06pm EST
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By Adam Jourdan

SHANGHAI (Reuters) - In China, where higher prices mean prestige, luxury U.S. electric carmaker Tesla is taking a bold step to win over clients and cachet by curbing the markup to just half of what some of its rivals can command.

Though it risks relegating its brand to a lower tier, Tesla's marketing strategy could prove a model for other imported brands, which have come under fire from China state media and regulators for allegedly ripping off shoppers with inflated prices.

In an unusual blog post last month, the firm detailed the lower-than-expected 734,000 yuan ($121,400) China price tag for its high-end Model S electric car. The price, still 50 percent higher than in the United States, includes only "unavoidable" taxes and transport costs, it said.

"If we were to follow standard industry practice, we could get away with charging twice as much for the Model S in China as we do in the United States. But we're doing things differently," Tesla said in the blog on January 22, posted to consumers through popular Chinese social media channels.

The blog, titled "A Fair Price", drew overwhelming support from China's active netizens. One reader survey on popular site, which received over 80,000 votes, showed that 90 percent of consumers supported the U.S. carmaker's move.

Analysts said the lower price strategy could deter premium segment buyers, who are usually willing to spend extra to guarantee quality and cachet.

"Price transparency helps because people see that as different, but the lower price itself, I don't see a big impact from that," said Andreas Graef, Shanghai-based principal focused on automotive at consultancy A.T. Kearney.

Car makers often charge steep mark-ups in China. Daimler AG's (DAIGn.DE: Quote) high-end Mercedes-Benz SLS AMG model costs 3.1 million yuan ($509,000) in China, according to its local website, 150 percent above its starting price in the United States. Volkswagen AG's (VOWG_p.DE: Quote) Audi TT Coupe costs 519,000 yuan ($85,800) in China, over twice the U.S. starting price.   Continued...

The logo for Tesla Motors is shown at the company headquarters in San Carlos, California June 30, 2008. REUTERS/Robert Galbraith