Friday, May 24, 2024

‘Relationship is complicated’: Why Elon Musk is ‘big fan of China’ – Times of India

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Tesla CEO Elon Musk unexpectedly traveled to China on Sunday to meet Premier Li Qiang, just one week after canceling a planned trip to India where he was to meet with PM Modi. Musk cited “very heavy Tesla obligations” as the reason for the cancellation.
Musk had initially planned a high-profile visit to India during its ongoing election period to announce multi-billion-dollar investments in a new electric car facility and his satellite communications enterprise, Starlink.However, he ultimately postponed the visit, saying, “…but I do very much look forward to visiting later this year”.
Meanwhile, Musk’s China visit occurs at a tumultuous time for Tesla, characterized by declining EV sales that have led to a significant cost-reduction initiative, including cutting over 10% of its global workforce.
Elon Musk’s China dependence: A strategic necessity

  • Elon Musk’s ventures into China with Tesla have significantly shaped the electric vehicle (EV) landscape, both in China and globally. Initially, Musk seemed to have an advantageous position as he entered the Chinese market, gaining access to top leaders and influencing policy changes favorable to Tesla.
  • When establishing Tesla’s presence in China, Musk was granted significant benefits such as policy changes and access to low-interest loans. These incentives were crucial for setting up the Shanghai plant without a local partner, a rarity for foreign companies in China.
  • However, Tesla’s success in China has led to increased competition and scrutiny. As Musk helped build China’s EV industry, he inadvertently strengthened his competitors, creating challenges for Tesla in a market it helped energize. This dependence on the Chinese market for a significant portion of Tesla’s production and profits makes Musk’s pro-China stance both a strategic necessity and a potential vulnerability.

What they are saying

  • According to a New York Times report, “Musk’s fortune is tied to Tesla’s Shanghai factory. The Shanghai factory has replaced Tesla’s plant in Fremont, California, as its largest and most productive, accounting for over half of the company’s global deliveries and the bulk of its profits.”
  • In an online conversation with two members of Congress in July, he called himself “kind of pro-China”, the NYT report said.
  • “Musk’s response to the pressure has been to become a high-profile cheerleader of China’s ruling Communist Party, in sharp contrast to his renegade persona in the US, where he has clashed with the Securities and Exchange Commission and mocked President Biden in tweets, once calling him a labor union sock puppet,” a Wall Street Journal report said.
  • As per the WSJ report, in July, Musk expressed admiration for China’s economic achievements on Twitter, saying, “The economic prosperity that China has achieved is truly amazing, especially in infrastructure!”

Why it matters

  • Tesla’s success story in China has been a double-edged sword. While the Shanghai factory has become pivotal, accounting for over half of Tesla’s global deliveries, it has also made Musk vulnerable to Chinese leverage.
  • He has praised Chinese leaders and sided with China on sensitive issues like Taiwan, potentially as a strategy to maintain favorable relations and secure Tesla’s position in the Chinese market.
  • This is particularly concerning given that another of Musk’s ventures, SpaceX, handles sensitive US national security contracts.
  • Musk’s interests in China have long raised eyebrows in Washington, with President Joe Biden saying in November 2022 that his links to foreign countries were “worthy” of scrutiny.
  • For China, Musk is a welcome antidote to the tough talk from US officials, which played out most recently during a visit by secretary of state Antony Blinken.

The big picture

  • Musk’s deepening ties with China reflect a broader trend of American tech giants who leverage China’s vast market and manufacturing prowess, only to find themselves increasingly dependent on Chinese policies and economic shifts.
  • This dependency is especially pronounced for Tesla, which now sees the Chinese market as both a major growth driver and a potential risk due to escalating geopolitical tensions.

Between the lines

  • Tesla’s presence in China has spurred innovation and competition within the Chinese EV market. Tesla’s shift to using locally made batteries and parts has helped local suppliers develop technologies that are now used by Chinese EV makers, inadvertently aiding his competitors like BYD-“Build Your Dreams”.
  • BYD surpassed Tesla to become the world’s leading electric vehicle (EV) seller in the last quarter of the previous year. However, Tesla regained its position as the top EV seller in the world during the first quarter of this year, although BYD continues to dominate the market in China.
  • These Chinese manufacturers are now challenging Tesla’s dominance globally.
  • At the same time, Tesla’s dependency on the Chinese market for significant production and revenue streams places Musk in a precarious position amid fluctuating US-China relations.

What’s next

  • The trajectory of Tesla in China will likely dictate significant aspects of Musk’s businesses, influencing not just automotive and tech sectors but potentially impacting US security interests.
  • “China’s game isn’t to let Tesla win,” Bill Russo, founder of Automobility, a Shanghai-based consulting firm, told WSJ. “China’s game is to make the domestic industry compete.”

(With inputs from agencies)

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