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Tesla: China could be biggest market for electric car

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Tesla Motors

(Read caption) Tesla CEO Elon Musk predicts that a six-figure price for his company's vehicles will make them more attractive to Chinese car buyers.

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$121,000 sounds like a lot of money for the Tesla Model S, considering you can pick up the 85 kWh car in the U.S. from $80,000 or so, before incentives.

And it is a lot of money, but in China, where that price tag will be attached, Tesla promises it represents good value for buyers.

CEO Elon Musk is positive too--expensive it may be, but in comparison to rivals it's very reasonably priced--and China could wind up being Tesla's biggest market.

The $50,000 Chinese premium is all down to the way the country's tax system works.

The car itself starts off at around $80,000, just like any 85 kWh Tesla Model S. Since Tesla builds its cars in the U.S, it has to add $3,600 in shipping costs to get cars over to China.

It's taxes that represent the real cost increase. Customs duties and taxes amount to $19,000, and the country's sales tax--VAT, or "value added tax"--adds another $17,700. At current exchange rates, that's 734,000 Chinese Yuan, equivalent to $121,000.

On Tesla's blog, where the costs are broken down, the concern is that Chinese buyers will actually see the car as too cheap--suspiciously so, next to apparent competitors.

The company says its competitors may try and convince buyers that the Model S is a lesser car, hence the lesser price. The reality is that many automakers exploit the Chinese market conditions, adding healthy premiums to their cars to maximize profits. Many charge as much as twice the price they do in the U.S.

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MORE: Buying A Tesla In China: Just Call It 'Te Su Le'?

Tesla's strategy is to price its cars as fairly as possible. "I don't think ripping off customers is a good long-term strategy", Musk told Bloomberg.

He says that some have called Tesla "huge idiots" for not adding a huge premium to its cars for the Chinese market.

But some analysts have already suggested that the lower-than-expected pricing could attract premium customers to the brand. Musk believes China will, at the very least, be the second-biggest Tesla market after the U.S.--but has the potential to be even bigger.

All eyes will be on Tesla's entry into China, as many automakers have struggled to sell electric vehicles there.

The low price and the promise of Supercharger fast-charging stations across the country may allow Tesla to do what few other companies have done--sell electric cars in volume in China.

Long-term, says Musk, Tesla may even build a factory in China--dodging those import tariffs and making the Model S even more affordable.


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