Elon Musk accused of dancing to Beijing’s tune to build Tesla

Elon Musk is many things, but a professional dancer is not one of them. As the first Tesla Model 3s rolled off the electric car maker’s Shanghai “gigafactory” production line, Musk let the euphoria get the better of him. 

Appearing at an on-stage event to mark the occasion, the chief executive threw off his blazer and treated the cheering crowd to some decidedly questionable moves, which became instant online meme fodder.

But Musk had good reason to celebrate. Tesla had done what no foreign carmaker had previously been able to: set up a Chinese factory without being forced to partner with a local company. Giga Shanghai was approved in record time, built in less than a year, and the company received tax breaks and cheap loans to help finance it.

“[The government] really rolled out the red carpet for them,” says Tu Le of China-based automotive consultancy Sino Auto Insights. “There’s no other company that was able to build a factory in less than a year, start manufacturing cars, and all of a sudden, fill a factory in the span of two years.”

Tesla has become the leading electric vehicle maker in the UK and US in recent years. Last year its Model 3 was the second best-selling new car in Britain. This year it was the second most popular overall car. The company is expanding production with new factories in Berlin and Texas.

But much of its ascendance to becoming the world’s most valuable car company, and Musk being crowned as the world’s richest person, has been down to China. 

Last week, the company revealed it had almost doubled car sales to 936,172 in 2021, shocking Wall Street and shares up more than 13pc the next day. Daniel Ives, an analyst at Wedbush Securities, estimated that the above-forecast figure was largely down to better than expected sales in China.

Its Chinese factory accounted for almost half of production, making Model 3 and Y vehicles that are sold not only in Asia, but also in the UK and Europe.

But Tesla may struggle to keep up momentum. While many Western technology companies are already frozen out of China, those left are finding life increasingly difficult. 

Yahoo, LinkedIn and Fortnite are among the companies shutting down or limiting their services, citing increased regulatory scrutiny. Recently, Intel found itself apologising to the Chinese people for telling suppliers not to use products from Xinjiang, a requirement under new US measures responding to alleged human rights abuses in the region.

Sino Auto Insights’ Le says China’s ultimate goal is the rise of homegrown car manufacturers such as Nio, Xpeng and WM Motor, as well as battery companies such as the giant manufacturer CATL. Tesla, he says, was welcomed into the country to force the domestic firms to up their game.

“There’s this Chinese proverb about the catfish effect. You have this pond of fish that are fat, dumb and happy. And they throw this aggressive catfish in there in order to make the rest of the fish more aggressive, more competitive. So that’s exactly what they did with Tesla.”

Paul Triolo of the Eurasia Group argues there is unlikely to come a point at which Tesla is no longer useful to China. 

“Beijing sees having players like Apple and Tesla in China as a good thing. There’s a certain prestige and sense of being good for the business community that’s created by them.”

However, Musk’s company has had speed bumps in the country. Last year, local reports said Tesla cars had been banned from military installations in China over fears the cameras on its cars could be sending video feeds back to the US. Musk denied the Texas-based company had any incentive to do this, but soon agreed to start storing data locally in order to placate officials.

Musk has struck a more conciliatory tone with Chinese regulators than his notoriously abrasive stance with American ones, perhaps knowing he has more to lose. He has also vocally praised the country, calling it a global technology leader, which few US chief executives have been willing to do of late.

But Musk’s overtures have not been wholly successful. Last spring, Tesla faced a wave of criticism from government officials and state media after appearing to dismiss safety complaints, with the Communist Party’s top legal authority saying the company was “shirking responsibility”. Tesla swiftly apologised. 

Musk also found himself at odds with Beijing when it recently lodged a UN complaint over Starlink, the entrepreneur’s space internet service, saying its satellites had been involved in near misses with Chinese astronauts.

Ironically, Tesla’s bigger threat might be from the US where politicians have grown uneasy with Western businesses seeming to cosy up to China. Last week, after Tesla opened a showroom in Xinjiang, it sent Republican senator Marco Rubio fuming that “nationless corporations are helping the Chinese Communist Party cover up genocide and slave labour in the region”.

Both the Trump and Biden administrations have put brakes on the export of US semiconductor technology to China. While Eurasia Group’s Triolo says the White House may find it more difficult to do the same with electric vehicles due to climate imperatives, it might grow concerned about Tesla developing or storing artificial intelligence software in China related to its driverless car technology.

“The question would be, ‘Hey do you want China to get a hold of that technology? So it can drive its battle tanks without any drivers?’ I think they will look at that at some point.”

Before long, Musk could find himself doing a different kind of dance in China.

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