Electric carmaker Tesla hits roadblock in China over trademark

Patrick T. Fallon | Bloomberg | Getty Images

Popular electric carmaker Tesla Motors' plans to enter the world's biggest auto market have stalled after a businessperson in China claimed trademark rights to the name, people close to the California-based company have told Reuters.

The maker of the best-selling U.S. electric car—the premium Model S sedan with a price tag of $70,000—had originally hoped to launch a flagship showroom in Beijing at the start of the year, according to three sources, but has had to put that idea on hold partly because of the trademark issue.

As a result, the 10-year-old company's first shop-front in China, at the Parkview Green Fangcaodi mall in the capital, sits boarded up. While there is no Tesla sign, the shop is adorned with billboards of the Model S, which was launched in the United States last year.

In addition to the trademark issue, Tesla has yet to complete product registration with Chinese authorities enabling the sale of the Model S, although one of the sources said Tesla was almost through with the process.

(Read more: The young and rich snapping up Tesla's Model S)

Kingston Chang, general manager of Tesla China, did not respond to requests for comment.

Atsuko Doi, a Tokyo-based Tesla spokeswoman, said the company had this week begun taking "reservations" for the battery-powered Model S in China. It opened its first Asian showroom in 2010, in Tokyo.

"We are planning to open a Beijing store this year," Doi said in an email this week, without providing further details.

Zhan Baosheng, the businessman in the southern province of Guangdong, owns the Tesla trademark in China, according to his agent, who processed the papers to register the name with the State Administration for Industry and Commerce.

(Read more: Tesla says Model S tops safety ratings)

An official with Jinda Trademark, the Guangzhou-based agency Zhan used, said he registered the name in 2006. She declined to give any details about Zhan.

According to Jinda Trademark, Zhan registered trademarks to the Tesla name in both English and Chinese.

Zhan runs a website using the Tesla China domain and operates a Tesla-branded account on popular Chinese microblog site Sina Weibo, collecting information from consumers interested in placing orders for or getting more information about his "Tesla" cars.

Zhan's Tesla website carries a brand logo almost identical to American Tesla logo, and showcases one product, though the car looks nothing like the Tesla Model S. The website says the company's "dream is to build China's best electric car."

Legal experts familiar with trademark disputes in China said it might be difficult for Tesla to resolve the trademark issue unless it buys Zhan out.

(Read more: Elon Musk: Tired butoptimistic about Tesla's future)

China has rules that protect globally renowned brands, but that might not apply in the case of relatively new companies such as Tesla.

"In the e-vehicle market, everyone knows Tesla. But the burden is on Tesla to prove that its trademark is recognized by car customers [in general], and that it has used and promoted the trademark for sufficient time period in China in order to be eligible for well-known trademark determination," said Vincent Wang, Shanghai-based partner at law firm Davis Wright Tremaine.

Apple was embroiled in a similar case for years, before reaching $60 million deal last year for the rights to use the iPad trademark in China.

All roads lead to China

Tesla's founder billionaire Elon Musk has expressed excitement at entering the Chinese market, pointing to the high demand for luxury cars due to the country's expanding wealthy class.

"It's the world's biggest market for premium sedans. If you take something like, say the Mercedes S-class, they sell approximately half of all their worldwide production in China," Musk said during an earnings conference call earlier this month.

Musk said the company was developing a special Chinese version of the Model S with a more comfortable rear seat. Many owners of prestige vehicles in China employ drivers.

Passenger car sales totalled 15 million in China last year, although electric and hybrid car sales only numbered a little under 24,000.

General Motors has been selling the hybrid Chevrolet Volt in China since early 2012. Daimler, in a joint venture with BYD, has also launched an electric car called the Denza.

Even as global automakers plan to launch electric vehicles in China, they have a challenging future, said Yale Zhang, head of Shanghai-based consulting company Automotive Foresight.

High price tags and the lack of charging infrastructure could pose a problem. Positioning green cars as "toys for the rich are a good proposition, but even then Tesla would be lucky to sell a few hundred" Model S sedans a year, Zhang said.