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Double Trouble In Little China

|Includes: Tesla, Inc. (TSLA)
Summary

Tesla's move to a dual charge port is not all it seems at first glance

When first mover advantage turns to first mover pain

Challenges faced operating in China

Plan for the best, ignore the worst.

Background

While the ever bubbly Electrek happily heralds Tesla releasing a new "Dual Charge" port for the Chinese market, enquiring minds wonder if this is all good news.

Image source Electrek article: Tesla unveils new dual connector charge port design for Model S and Model X

At first glance this sounds fabulous, after all Tesla has a plan for allowing owners the ability to tap into the huge roll out of the Chinese standard "GB/T" style charging stations, both low power A/C and high-power D/C.

It also plays well to Nomura’s recent price target hike.

However, we must look deeper behind the headline to see quite what this means to Tesla, its 700+ Supercharger installs and 10,000+ strong existing client base.

Being First Isn't Always Best

Many Tesla followers, myself included, originally assumed Tesla's existing investment would continue largely unaffected by the change. A fairly painless transition over to the new standard by adding the two new GB/T ports (one for AC, one for DC) to new cars, rolling out an adaptor for older cars, while continuing to include the EU style plug present behind the light cluster. Such a plan would leave the Supercharger network largely unaffected.  Unfortunately, this does not seem to be the case. 

According to news from Chinese sources (e.g. 特斯拉宣布支持新国标充电接口:老车免费升级_IT与交通_cnBeta.COM) it seems the new ports are there in isolation, the existing port has been deleted, and Superchargers will be converted over to the Chinese standard connector. Leaving Tesla in the unenviable position of coming up with a forced transition strategy.

For the absolute clarification of US readers, I’d also like to just play a small game of spot the difference between the two ports.

The red car on the left having the new GB/T set of inlets, the black car on the right the EU style. NB the right hand of the two ports of the red car is NOT compatible with the EU port of the black car.

Migrating Superchargers to use the GB/T DC plug also raises the very real question, what exactly is the point of Tesla embarking on this folly?  GB/T DC offers similar levels of performance, and the Chinese government are going to pay for it.

Tesla should simply give up now on Supercharger deployment in China, it’s an investment war they simply cannot win.

Even more worrying than this, the upcoming “Luxo-BEVs” from Jaguar, Mercedes, BMW, Volvo and VW can walk right in from their “boots on the ground” facilities and take full advantage of this new reality.

How Long? How Much?

With any transition plan stakeholders must question these two key points.

Official detail from Tesla is scant, but the timescale and costs of the works are clearly non-trivial. While I would love to put some estimates to these, quite honestly it would be at best a semi-educated guess.

Instead let’s lay out in chronological order key milestones Tesla must deliver, and I’ll leave it as an exercise for the reader to determine their assessment of cost and time effort.

An adaptor:

For existing owners, a mechanism must be found to allow use of both the A/C and D/C variants of the GB/T standard. No pictures have yet surfaced of such an adaptor in the wild.

It is unclear if this will follow suit of the EU style CHAdeMO, which the Chinese DC system is most similar to, or a completely redesign unit. For those unfamiliar with the $450 CHAdeMO unit: It is a large robust device with a number of safety systems as one would expect of something handling 100’s of Amps yet expected to operate outside in all weathers and survive the rigours of being tossed around in the trunk of a car. Given it’s “bargain” price relative to all other Tesla options and accessories, it would be a fair assumption it’s offered at low margins.

Tesla must finalise the design of this Chinese GB/T DC adaptor, produce 10,000+ of them, and distribute them to the existing owners.  All free of charge.

Changes to new cars:

To date we have seen only a few select images of these new ports, most likely renders, not physical cars. This is not completely surprising, this would be the first sheet metal change to either the Model S or Model X since initial launch. The timing couldn’t be more unfortunate during a period where it’s ‘all hands on deck’ to get the Model 3 out the door.

In achieving this milestone, a new stamping process, a new charge port subassembly, and some internal wiring changes.

Supercharger works:

Tesla must deliver this change at breakneck speed, or risk owners of the newer cars being unable to use the Supercharger network. Potential owners may even hold off a purchasing decision until the update has been complete.

Other than the logistical challenges of revisiting 700+ units spread all over the country, even if the task is just swapping out of one plug style for another, it is still not clear if technical challenges also exist.  The Supercharger safety mechanism for the EU style port lies within the car, an electrical solenoid pin firmly grasping the plug until it sees no voltage. CHAdeMO and GB/T operate differently, with the responsibility lying with the charger. Tesla are more than smart enough to resolve this, but it may exacerbate the work level involved.  

Destination Charging:

Included for completeness, but frankly given the broad rollout of GB/T AC points is probably not on the critical path.

What’s the official word

Tesla are remaining tight lipped on this and we aren’t seeing much chatter from behind the great firewall of China.

Numerous posters have commented on the Eletrek article seeking clarification. While I’m sure Electrek have a line into Tesla, no update to the article is pending.

We aren’t in Kansas anymore.

Whilst this change is solvable, like many problems given enough time and money, it does highlight a key difference when operating a business in China.

In the US Tesla have been given free rein to operate a completely proprietary network.

In the EU things have been subtly different. With vehicle standards requirements mandating certain loose adherence to standards (e.g. the “Mennekes” style port on the EU Tesla vehicles). Government pressure is still behind CCS moving forward, without necessarily prohibiting proprietary standards and acknowledging existing deployments exist. Being sympathetic to both owners and automakers in transition.

Then we come to China. No doubt Tesla have tried to lobby, persuade and negotiate to avoid this situation. It hasn’t worked. China has decided to put their full weight behind their EV charging standards with an all or nothing approach.  Tesla have to play by their rules.

This isn’t all bad news for Tesla long term. The rollouts of both DC and AC charging will be at levels of investment Tesla simply couldn’t match. The result will be a great backdrop for EV adoption in the region and one that long-term Tesla should benefit from.

It is also worth noting other manufacturers may face challenges. Outside China manufacturers have been working toward a standard charging “envelope”. In layman’s terms the size of the flap that hides the charging port. This is consistent for both EU and US CCS charging ports. The dual nature of China’s charging ports means they don’t fit inside this envelope, thus forcing manufacturers into greater product variance for Chinese destined vehicles.

Conclusion

Unlike other problems Tesla face, this one is an external event that really is outside their control. I for one do not blame Tesla management here. Stuff happens.

Confronting such issues head on, giving clear guidance to the challenges and timescales for both customers and investors, is what separates the great companies from the also-rans. I hope Tesla step up to the plate in this regard, and start communicating to their biggest investor pool in the US, rather than keep this hidden in China.

Long term however the damage is much more worrying. Highly capitalised incumbents operating in Tesla’s market sector have been handed on a plate a way to remove Tesla’s single largest USP.

I therefore suggest, on both tactical and strategic fronts, this is bearish for Tesla.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.