Why Musk now needs China more than it needs him
Elon Musk’s whistle-stop trip to Beijing for an audience with China’s Premier Li Qiang highlighted how the power dynamic is shifting between Tesla and the Chinese government.
Tesla’s chief executive left the country with assurances that the carmaker will be able to roll out its self-driving technology. The software underpins Musk’s hopes for rekindling Tesla’s growth in the world’s biggest electric-vehicle market, where it is being outmaneuvered by homegrown rivals.
China, meanwhile, used his trip to promote its message that it is open to American businesses, despite rising tensions with the U.S. State media quoted Musk giving a stamp of approval to China’s EV market, saying his comments dispelled U.S. concerns about overcapacity. Beijing also sought to show that foreign firms can thrive under its tight regulatory controls over data.
Musk emerged with a win, analysts said, but the meetings underscored that while China remains crucial to Tesla, Beijing now needs Tesla less to spice up its EV and autonomous-driving industry. Tesla has seen China sales fall as its rivals there flood the market with hundreds of new models, contributing to the American carmaker’s first year-over-year quarterly car sales decline since 2020 and a sharp profit drop.
“China needed Tesla to open the EV market, I’m not sure China needs Tesla to open the market for autonomous vehicles,” said Bill Russo, a Shanghai-based consultant for Automobility.
Some Chinese companies are already capable of sophisticated driving technology on their own, he said.
Chinese officials feted Musk when he went to China in the early years of the relationship. They offered land, low-interest loans and tax incentives for Tesla to build a factory in Shanghai and its approval boosted consumers’ perception of Tesla in the world’s biggest auto market. Then Premier Li Keqiang even took a Tesla for a spin within the gated Zhongnanhai leadership compound in 2019.
The deal worked out well for both sides. Tesla helped ignite China’s EV industry, which is now the envy of the world. Shanghai became Tesla’s most productive and cost-efficient factory, enabling it to lower the prices of its cars. Sales of Tesla’s made-in-China Model 3 and Model Y soared, making the country its second-biggest market, as well as an export hub.
But Chinese carmakers inspired by Tesla have become fierce rivals, gobbling up its market share there and increasingly challenging it overseas. Expectations among many analysts that Tesla would expand its Shanghai factory to manufacture a more affordable EV have dimmed. Instead, a plot of land adjacent to its initial plant is being used by Tesla to produce its energy-storage Megapacks. Workers at the car factory say operating hours were cut to five days a week from seven in March as it wasn’t running at full capacity.
When talking about plans for Tesla’s “Full Self-Driving,” or FSD, features during a call to discuss the company’s disCommunist mal earnings last week, Musk said Tesla would release the service “in any market that— where we can get regulatory approval for that, which we think includes China.”
Days later, he flew to Beijing to seek Chinese leaders’ blessing. During his less-than-24hour visit, Chinese regulators also gave Tesla’s cars clearance for data that they collect on the road, potentially paving the way for the government to loosen bans on the vehicles going to sensitive sites such as military complexes and some government buildings.
Musk also agreed to a deal with China’s Baidu for its FSD rollout, reassuring Chinese leaders over the security risks of Chinese user data.
“Pushing forward Tesla’s FSD in China is of strategic value to Beijing, which aspires to build itself as a global data leader,” said Feng Chucheng, founding partner at Hutong Research. “This will be much desired for Beijing to prove that its data regulatory regime is gaining traction.”
Chinese state television showed the meeting between Li and Musk. Li, previously the Party chief in Shanghai when Tesla was setting up its production facilities there, called Musk his “old friend” and Musk’s 3-year-old son “a handsome little boy” during their meeting.
The encounter marked a contrast to the grillings the chief executive of Chinese company-owned TikTok has received during appearances before lawmakers in Washington. It also came days after President Biden passed a law ordering the video-sharing app’s U.S. operations to be sold or face a ban.
Li used Sunday’s meeting with Musk to signal to foreign businesses that the government welcomes their presence, at a time when foreign direct investments are falling.
“China’s huge market is always open to foreign businesses. China does what it promises,” Li said, according to a government readout of the meeting. China is committed to offering a better business environment allowing foreign corporations to feel safe about investing in China, he added.
Global Times, a nationalistic Communist Party-backed newspaper, said in an article that China’s current EV capacity has been jointly forged by both Chinese and foreign companies, in response to U.S. claims that China had a problem with EV overcapacity.
State media commentary highlighted Musk’s comment Sunday that all cars will be electric in the future. “Based on what Musk said, not only is there no overcapacity, it is far from sufficient,” the commentary said.
Treasury Secretary Janet Yellen warned against industrial overcapacity in China during a visit to Beijing in early April and the Biden administration has mooted restrictions on Chinese cars over national security concerns related to the data they collect. The European Union is considering imposing tariffs on Chinese cars as it investigates state EV subsidies.
Musk has often been a dependable ally to Beijing. He has publicly praised its ruling Communist Party and China’s economic miracle. Musk was rebuked by the government of Taiwan after he described the self-ruled island as China’s equivalent of Hawaii, with Taiwan’s Foreign Ministry suggesting the Tesla CEO had sold himself to Beijing.
Musk traveled to China a week after he postponed a trip to India, another of China’s geopolitical rivals, where he was expected to meet Indian Prime Minister Narendra Modi and unveil plans for Tesla’s entry to the country.
Investors saw the China trip as a success, sending Tesla’s shares up 16% Monday. Whether the latest blessing from Beijing will reverse Tesla’s sliding fortunes in the country, remains to be seen. Tesla is stuck with two aging mass-market EV models despite a recent refresh and the introduction of the Cybertruck, which hasn’t yet been released in China.
Still, the endorsement from a top Chinese official could spur new sales for the U.S. carmaker, said Russo, the auto consultant.
Chinese firms have become rivals, gobbling up Tesla’s market share there and challenging it overseas