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Tesla shows way forward?

Figures for the first six months of 2013 show that the UK car industry is doing exceptionally well. Production is up, sales are up, exports are up and profits are up. It seems like we have never had it so good. Car executives are a canny lot though and they are sure to be looking over their shoulder as well as into their crystal balls to spot any potential weeds in this rosy garden.

Figures for the first six months of 2013 show that the UK car industry is doing exceptionally well. Production is up, sales are up, exports are up and profits are up. It seems like we have never had it so good. Car executives are a canny lot though and they are sure to be looking over their shoulder as well as into their crystal balls to spot any potential weeds in this rosy garden. Just last week they had the first signs of a cold wind blowing weeds in from the east. Most of the UK's current success can be put down to extremely strong exports, with the industry exporting some 80% of its production. This is good news for the balance of payments and proves that the UK can compete profitably on the international stage. Just last month, China became the biggest single market for Jaguar Land Rover.

Therein lies the issue. Last week the Chinese authorities announced that they were investigating allegations of price fixing among foreign manufacturers importing their cars into China. It seems that some luxury models cost twice as much in China than they do elsewhere. Some of this is down to import taxes, VAT and other tariffs but the suggestion is that some luxury marques have been taking advantage of the Chinese market's hunger for luxury cars by setting minimum prices with their dealers. This would be against Chinese law and, if proven, could result in seriously diminished profits in this market.

A second threat comes from the rise of new technologies. The cars that the UK exports to these emerging markets are overwhelmingly luxury cars. That is good, because luxury cars mean higher profit margins but what the UK has failed to do is make any real inroads into alternatively powered vehicles. In the US, the big manufacturers are beginning to worry. Tesla has just announced record production, profits and a share price at an all time high. It seems they have achieved what has eluded the major manufacturers: they have managed to make electric cars profitable and desirable. Certainly they did this with some good technology but more than that they did it by breaking the mould and redesigning the car sales model.

Tesla sells direct to customers from its own branded shops. It constantly updates its cars after the sale, a bit like software makers. And it forgot about competing at the bottom of the market and concentrated instead on making luxury, desirable cars. With our focus on premium brands, it is this last factor that might illuminate the way forward for our car industry.
 

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