WEIRD as it may seem, new energy-related companies listed in China are now being categorized as “Tesla concept stocks” even though their businesses don’t necessarily have anything to do with the US electric carmaker of that name.

Rather, this curious stock market nomenclature reflects a tendency for market players to go overboard to capture hype and jump on bandwagons.

Green energy has certainly become the current buzzword as many of China’s cities choke through another round of toxic smog.

This is not the first time that green, car-related stocks have become a darling of market speculation in China. But set against Tesla’s more than seven-fold stock price increase within one year, the backdrop has changed in tone.

Following the report of narrowed losses in 2013, share price of the Palo Alto, California-based electric car company shot to a record of more than US$265 recently. It is a valuation bolstered largely by the promise of commercial viability that Tesla offers the new energy car industry, which is still struggling to strike a balance between mileage performance and manufacturing costs.

Tesla’s latest and current offer, the US$70,000-plus model S, sold 22,400 units last year globally, outperforming a number of traditional premium models in the US market.

Shortly after Tesla’s release in China earlier this year, orders came pouring in, giving the company a full manufacturing schedule until September. It is perhaps the only electric car so far in China to have produced a “wow” effect big enough to capture the attention and hearts of consumers.

It is not that China cannot make great electric cars, but rather that local manufacturers of the genre don’t have the creative whiz-bang to set the market on fire. Those trying to hitch their wagons to the Tesla juggernaut could eventually find themselves victims of a backfiring strategy.

At first glance, the success story of Tesla is all about its product — a combination of realism and futurism.

Powered by a complex pack of lithium-ion batteries working under a smart management system, the car can run up to 400 kilometers on a single charge, relieving motorists of the sort of “range anxiety” surrounding most green cars now available on the market. And Tesla offers a really “cool” experience inside the cabin, where a 17-inch futuristic LCD touchscreen replaces the traditional control panel, putting media, communications, cabin and vehicle controls all at one’s fingertips.

Those all come at an extra cost, of course. As other green carmakers take the hack-and-slash route to make their models more affordable, Tesla has adopted the opposite tack. Its cars are aimed at the select few who want something special and are willing to pay for it. By the time Tesla expands into the mass market, planned in three years’ time, the company will already have positioned itself as an upper echelon producer. As the auto industry has proved time and time again, image counts.

It is this very car-making strategy that sets Tesla, a start-up company in the Silicon Valley, apart from China’s new energy industry. Here, green carmakers target first and foremost the middle-income consumers in their pursuit of economies of scale.

That consumer segment does account for the biggest bloc of buying power in China, but so far it has shown lukewarm interest in the green cars on offer, creating a dead-end for the industry.

The current capabilities of electric vehicles, as it seems, simply fall short of public needs. Central and local governments have deployed all sorts of subsidy and incentive programs to try to coax consumers to buy green cars, but it’s been clear for some time that China is sputtering to reach its ambitious target of 500,000 electric cars on the road by 2015.

The most pressing issue for Chinese new energy carmakers is to extricate itself from the tangle of technology limitations and from the expectations of policymakers that green cars can provide a quick and easy solution to the nation’s increasing air pollution problems.

It might be too early to say Tesla represents the future of electric carmaking, but the fact that the innovative automaker is still alive after 10 years of start-up losses tells us something from a business perspective.

Does the new energy car industry need to shake up the status quo to survive and thrive? Has Tesla struck on a winning new formula by becoming vertically integrated — that is, running a gamut of businesses along the entire value chain, from battery making and car manufacturing, to retailing and charging facilities?

Giga factory

Last month, the company announced its grand plan to build a US$5 billion giga factory to make lithium-ion batteries. The production is expected to drive down the kilowatt-per-hour cost of its battery pack by more than 30 percent at the end of the first year of mass-market model production.

In addition, instead of selling through authorized franchise dealerships, Tesla has chosen to adopt a direct-sales model, even at the expense of antagonizing many traditional dealerships in the US.

That plan ran into some predictable opposition last week when the state of New Jersey’s Motor Vehicle Commission voted to ban Tesla from direct sales to customers.

As part of its after-sales service, Tesla has set up charging stations to support long-distance travel on batteries. Inadequate charging infrastructure has long been a major stumbling block for the electric car industry.

Via energized routes covered by the network of Tesla Superchargers, which can replenish half a charge in about 20 minutes, Models S owners will be able to drive coast-to-cost in the US for free.

What Tesla achieved brings to mind a quote by Gandhi: Be the change you want to see in the world.

Could the Tesla formula be emulated in China? Not easily. For starters, a start-up company with no car-making experience wouldn’t even be allowed to operate in the domestic industry.

Then, too, China’s car markets can be very parochial. When domestic electric carmakers want to expand their markets here beyond their manufacturing centers, they frequently drive headlong into regional barriers erected by local governments to protect their homegrown new energy industries.

This month’s news that cars made by Shenzhen-based carmaker BYD, Beijing-based BAIC Motor, and Anhui Province-based JAC would be finally be eligible to get free license plates in Shanghai electrified the stock market.

The announcement came after the central government ordered pilot cities benefiting from its green energy subsidy program to include at least 30 percent of non-local car models in their local promotion targets.

But even with some barriers being slowly dismantled, China still doesn’t offer the freewheeling open market that can make a potential game-changer like Tesla flourish.

Indeed, there is still no sign that new energy carmakers in China are ready or willing to venture into that more sticky realm of battery-charging infrastructure development. Progress has been stalled for years by a seesaw power battle between the State Grid and the big three petrol companies. All want a slice of that cake when it’s baked.

Fairy tale?

Finally, the question arises: Is part of Tesla’s success story a cleverly concocted fairy tale?

In just six months, five Model S cars have caught fire, raising new questions about the safety and maturity of vehicle electrification. In the latest case, a car went up in fames even when it was parked and unplugged.

No casualties have resulted, and the company’s excellent crisis management team was able to extinguish a lot of the controversy quickly.

Then there is the accounting side of the business, where mirrors may be adjusted to cast a more favorable image. There is a broad gap between the company’s income statement stated under Generally Accepted Accounting Principles (GAAP) and the Non-GAAP system.

In its financial statement for 2013, the company reported GAAP net losses of US$74 million, and also included Non-GAAP net earnings of US$103.6 million for investor reference. It’s surely heartening for them to see the company finally turn its first profit, but that is based on a figure that excludes stock-based compensation, non-cash interest expenses and, most importantly, adds back the deferred revenue and related costs of its Model S lease programs, which are not recognized by GAAP accounting.

Under that system, the bank sends Tesla a full check up front and keeps collecting lease payments from consumers over a three-year rental period, until they can choose to continue to pay for its ownership or sell the car back to Tesla at a pre-determined price and let the company pay the balance to the bank.

Model S gross profit deferred due to lease accounting amounted to US$77.9 million last year. Whether the money can be eventually secured by the company all comes down to how satisfied its customers feel.