Protesters upstage Tesla at China's top auto show

Hong Kong/Beijing(CNN Business) Tesla has been swept up in yet another controversy in China, even as the company tries to win new customers there with cars it says will be tailor-made to match their preferences.

This week, Tesla's booth at the Shanghai Auto Show was briefly besieged by protesters complaining about problems with its cars, criticism that has dogged Elon Musk's company for months in the world's biggest market.

Video footage of the incident on Monday, which later went viral in China, showed a woman climbing on top of a Tesla vehicle, alleging that her car had defective brakes. The demonstrator — who wore a white T-shirt emblazoned with a Tesla logo and the words "brake failure" — was later pulled away by security.

The incident overshadowed an announcement the US company made the same day, when a senior Tesla executive told Chinese newspaper 21st Century Business Herald that the automaker would start developing some of its vehicles in China from scratch — with new models that would incorporate "many Chinese elements."

While the vehicles would be designed based on Chinese consumer research, they'll also be sold around the world, Grace Tao Lin, Tesla's vice president of external affairs in China, was reported as saying.

The news was supposed to mark an important milestone in Tesla's Chinese expansion plans, which are critical to its global strategy. China accounts for a fifth of Tesla's (TSLA) revenue, and is its second largest market after the United States, according to a recent company filing. Musk himself has said that China could become the automaker's "biggest market" in the long run.

But while the company had in the past enjoyed a warm reception in China — especially after setting up a Gigafactory on the outskirts of Shanghai — its reputation has taken a knock in recent months, with challenges ranging from questions over how its cars are made to concerns over the data it collects.

'No way' to compromise

Some of those criticisms came to a head once again on Monday at the Shanghai Auto Show, where Tao, the Tesla executive, was speaking with media.

The woman who climbed on top of the car was later jailed by Shanghai police for five days for disrupting public order, while a fellow Tesla car owner who also went to the conference to protest was given an administrative warning on the same grounds.

Police said in a statement on Tuesday that the demonstrators had gone to the auto show to "express their dissatisfaction."

The protester who mounted the vehicle, who was only identified by police by her surname, Zhang, "ignored" attempts by conference staff to dissuade her, "and forcibly climbed onto the roof of a show car, causing damage to the vehicle," police added.

After the incident, Tao addressed the issue with local media, saying that her team had "put forward a lot of solutions" to resolve the dispute with that customer.

But Tao also appeared to take aim at the protester, and suggested that she may have been hired to carry out the stunt. "Her actions have been very professional — there might be [people] behind her," she told a reporter for Caijing, a financial magazine.

The customer "does not accept vehicle inspections, and insists on high compensation," Tao added. "I think there is no way for us compromise."

The same sentiment was echoed in an official company statement released Monday. Tesla vowed to address complaints about its cars, but warned that it would stand firm against what it saw as undue criticism.

"We cherish every customer, so we are willing to make a public promise: If it is a problem with Tesla products, Tesla will ... firmly shoulder responsibilities to the end," the company said in a post on social media platform Weibo. "At the same time, what we need to explain is: our position is to not compromise with unreasonable demands."

That irked many people in China, who took to social media to express their own grievances with Tesla's response.

While some users said they disagreed with Zhang's forceful approach, many also praised her, calling her "brave" to confront Tesla.

The incident also appeared to encourage Tesla critics at Chinese state media outlets.

State-run news agency Xinhua hit out at Tesla on Tuesday, with a blistering commentary titled: "Who gives Tesla the confidence to be uncompromising?" The article called Tao's response "arrogant," which showed "no sincerity of addressing the problem."

Prosecutorial Daily, the official newspaper for China's top prosecution authority, also blasted Tesla.

"Car companies should show sincerity to solve problems, face up to consumer feedback, provide effective communication channels, and actively cooperate with investigations to clarify facts. Otherwise, keeping a hardline stance will only hurt both sides," it wrote in an editorial.

Tesla did not immediately respond to a request from CNN Business for additional comment. But by Tuesday night, the company had already begun an about-face.

In a new statement posted on Weibo, it apologized to "car owners" — without naming anyone — and vowed to "carry out strict self-examination and self-correction, while cooperating with the investigation of relevant government departments."

Rising challenges

The furore comes at a particularly tricky time for Tesla.

In February, Tesla was summoned by regulators to discuss the quality of its Shanghai-made vehicles. Authorities said they were concerned about several problems with the cars, including "abnormal acceleration" and "battery fires." The following month, reports surfaced that the country's military had banned its vehicles from entering its complexes, over concerns that cameras onboard could be used for spying.

More recently, the company has faced criticism for a series of problems involving its cars. In February, it was forced to apologize after a video showed one of its staff members in the Chinese city of Nanchang telling a customer that a potential overload of the state grid might have caused his electric vehicle to experience problems after charging.

"We apologize for the misunderstanding," Tesla said in a Weibo post at the time. "We have [now] properly solved the problem, and are testing and investigating the cause of this failure."

Tesla has tried to assuage officials in China by addressing the criticisms directly. Last week, Tao told authorities that any data the company collects in China would be stored within the country's borders, according to Chinese state media.

Even Musk has stepped in. Last month, the billionaire CEO appeared for a rare interview with state broadcaster China Central Television (CCTV), heaping praise on the Chinese government and predicting that the country could "become the biggest economy in the world." Days earlier, he showed up virtually at an important government conference, saying that his company's cars would never be used for spying in the country.

And this week, Musk is slated to attend China's Boao Forum for Asia, according to a guest list released by the conference organizer on WeChat. The influential forum is usually attended by thousands of executives and political leaders, and on Tuesday included an address from Chinese President Xi Jinping.

The company also appears to realize how high the stakes are, as shown by its rapid course correction this week.

"Based on this experience," the company said in its Weibo post, "we will try our best to learn the lessons."

— Steven Jiang and Laura He contributed to this report.