When electric automaker Tesla Motors began delivering the first Model S sedans to Chinese customers last year, the company seemed well-positioned to meet a growing demand for luxury goods and fulfill a desire by the central government to put more eco-friendly cars on the road.
Tesla (TSLA), aiming to meet lofty sales goals, quickly went on a hiring spree (eventually amassing a staff of 600 people) and began an aggressive rollout of free fast-charging stations known as superchargers.
But, then the company stumbled. It failed to hit its sales goals and sold fewer cars—approximately 3,500 in 2014—than electric and plug-in hybrid vehicles produced by Chinese rivals BYD and BAIC.
CEO Elon Musk has placed much of the blame on a misconception among Chinese consumers that charging electric cars was difficult. Others argued that infrastructure, in a country where most people don’t have private garages to charge cars, was the real problem.
However, a little-discussed barrier regarding car ownership—which likely had a big effect on Model S sales—was pushed to the side, and is only now slowly being addressed.
In Chinese cities, including Beijing, Guangzhou, Hangzhou, Shanghai, Shenzhen and Tianjin, regulations have been put in place to limit the number of cars an individual can own in an effort to reduce pollution. Prospective owners in the country can only acquire a license plate through a monthly lottery system.
However, so-called new energy vehicles have special privileges, which include local governments exempting them from the lottery system.
When Tesla entered the Chinese market last year, the company didn’t certify itself with each individual city in order to be included on their selected vehicle list and therefore weren’t excluded from the lottery. Without this exemption, potential Model S buyers must wait and go through the lottery system, an obstacle that could dampen sales.
In addition to lottery lists, officials also determine which models qualify for new energy vehicle subsidies. Until recently, local governments were known to hand out subsidies only to manufacturers based in its own region, says Lilia Xie, a research associate with Boston-based Lux Research, later adding that Tesla doesn’t receive new energy vehicle subsidies from the Chinese government.
Earlier this month, Tianjin added Tesla to its selected vehicle list. The company previously made the list in Guangzhou, Hangzhou, Shanghai and Shenzhen. That leaves Beijing as the final holdout.
“Beijing is the big one, Xie says. “There’s no other market that matters as much.”
