Tesla faces criticism from China's government, customers


After a dream run that saw it receive backing from the highest levels of the Chinese state, Tesla is getting a reality check, with the automaker coming under fire for how it treats its customers in the world's largest, and increasingly most competitive, car market.

The Palo Alto, California-based company earlier this week found itself on the pointy end of missives from two government entities, both of which criticized its attitude toward consumer service. The drubbing came after Tesla was the focus of a protest at the Shanghai Auto Show on Monday, during which the owner of one of its electric cars jumped on top of a display vehicle and yelled that she almost died because her car's brakes failed.

Visitors walk past Chinese-made Tesla Inc. electric vehicles at the company's booth at the Auto Shanghai 2021 show.

The unwanted publicity comes at an uncomfortable time for Tesla, which since breaking ground on its Shanghai Gigafactory in early 2019 has enjoyed an enviable run in China, receiving all-important support from the government and appearing to skirt the tensions between Washington and Beijing. The world's biggest maker of EVs has extracted perks other international companies have struggled to obtain, including tax breaks, cheap loans and permission to wholly own its domestic operations.

The first rebuke came early Tuesday when China's state-run Xinhua news agency published an article that said the quality of Tesla's EVs must meet market expectations to win consumer trust. Tesla should address consumer hesitation over buying its cars after issues ranging from malfunctioning brakes to fires during charging emerged, the article said.

A few hours later, the Commission for Political and Legal Affairs of the Communist Party of China Central Committee weighed in, posting a commentary on its WeChat account saying Tesla should respect Chinese consumers and comply with local laws and regulations. Making an effort to find the cause of problems and improve features is something any responsible business should do, and Tesla hasn't done that, said the Communist Party body that oversees China's police, prosecutors and courts.

The blowbacks stem from an incident Monday at the Shanghai Auto Show when a woman climbed on one of Tesla's display vehicles shouting that her car's brakes had lost control. Her protest was captured by scores of onlookers who then uploaded the footage to social media, helping it go viral. Tesla's booth at the show had a noticeably increased security presence the next day.

Late on Wednesday, the local market regulator in northern China's Zhengzhou city ordered Tesla to hand over driving data to the woman, state broadcaster CCTV said. Tesla needs to unconditionally provide the complete driving data for the half hour before the car had an accident that the owner claims was due to brake failure, according to the report. Tesla had earlier said it would give the data only under certain conditions and the local market regulator has been dealing with the owner's complaint since early March.

After initially pushing back against the woman's claims on Monday, saying she was "widely known" for protesting against Tesla, the automaker struck a more conciliatory tone in a statement late Tuesday, apologizing for the delay in resolving her problems.

"Tesla appreciates the trust and tolerance given by our car-owners, netizens and media friends, and actively listens to the suggestions and critics," it said. "In order to make up for the discomfort of the owner as much as possible and the negative impact on her car using experience and life, we are always willing to try our best to actively communicate with her and seek solutions with the most sincere attitude."

On Wednesday, the Communist Party's discipline commission said in a separate commentary that Tesla's apology shows a better attitude than before. The woman who protested, meanwhile, is being detained for five days.

It isn't the first time Tesla has had to defend itself and its actions in China, which is now one of its largest markets. In fact, demand from Chinese buyers helped Tesla report estimate-smashing deliveries of EVs in the first quarter, prompting Dan Ives at Wedbush to note that the "eye popping" numbers coming out of China cannot be ignored.

In March, Tesla had its cars banned from military complexes in China because of concerns about sensitive information being collected by cameras built into the vehicles. And in February, it was forced into issuing a public apology to China's state grid after a video purportedly showed staff blaming an overload in the national electricity network for damage to a customer's vehicle.

After the military order, Chief Executive Officer Elon Musk strenuously denied the company would ever use a car's technology for spying, and Tesla's Beijing unit said cameras that are built into its EVs aren't activated outside of North America.

The company's China head of communications and government affairs, Grace Tao, was also noticeably absent from a panel that she was due to attend at Wednesday's annual Boao Forum. Tao was originally scheduled to speak at a 9 a.m. on "building a secure and manageable supply chain." The panel's introduction board outside the ballroom didn't include her name, and she didn't show up.

Tesla's China honeymoon appears to be coming to an end right as the U.S. automaker is facing increasing competition from a slew of younger, cashed-up local EV players like the New York-listed Nio and Xpeng. Their presence at this year's Shanghai Auto Show was telling, with their large, shiny booths overshadowing exhibits from some of the more traditional carmakers.

Chinese EV makers like Nio and Xpeng not only enjoy the support of municipal governments in China but are also riding a wave of nationalistic sentiment that has ensnared other international names. Earlier this year, Swedish clothing giant Hennes & Mauritz AB was criticized by state entities for an old statement on its website about forced labor in the contentious Chinese region of Xinjiang.

In September, Nio Chief Executive Officer William Li, speaking at the Beijing Auto Show, waxed lyrical about customer service, saying that it's more important than volume. Freeman Shen, the founder and CEO of another EV upstart, WM Motor Co., noted that Tesla in China is "just like Apple in the early days, they educate the whole market."

Tesla has also come under fire for its perceived arrogance toward car owners. Many have taken to social media to complain about its lack of customer service and seeming disinterest in addressing problems. Others are angry that they've purchased a Tesla only to discover the company has steeply discounted the same model weeks later.

However for all the grumbling, Tesla's cars remain hugely popular in China. A record 34,714 China-built and imported Teslas were registered in the country in March, almost double the 18,155 registrations in February, when the week long Lunar New Year holiday slowed sales, and almost triple the number a year earlier, when the nation was in the grip of coronavrius lockdowns.