How Safe Is Elon Musk’s Bet on Tesla in China?

0

Tesla CEO Elon Musk once called President Joe Biden “a damp [sock] puppet in human form.” To Senator Bernie Sanders, he tweeted: “I keep forgetting that you’re still alive.” But in front of a very different sort of politician, trash-talking Musk turned to mush.

When China’s ambassador to the United States, Qin Gang, visited Tesla’s factory in Fremont, California, earlier this year, Musk could not have been more courteous. The two took a spin in a Model S Plaid and enjoyed a friendly chat. “China and the United States have great potential for cooperation” in electric vehicles, Musk said, according to a summary of the conversation posted by the Chinese embassy in Washington, D.C. “Tesla’s cooperation with China has been smooth and successful.”

The ambassador beamed. “Had an inspiring talk with @elonmusk today,” Qin Gang tweeted afterward, “on cars on the road, stars in the sky, research of human brain, meaning of life on earth and our future into the space. Look up and think beyond!”

The meeting held great symbolism. In contrast to Musk’s perpetual jabs at Biden, Qin Gang was signaling that the world’s richest man gets along just fine with the Chinese government—and was rubbing the U.S. administration’s nose in it. For the many in Washington worried about China’s quest for technological leadership, Musk’s apparent chumminess with the Chinese is cause for alarm. The U.S. and China have become bare-knuckled economic competitors, especially in tech-rich industries such as electric vehicles, but here was Musk, one of America’s most innovative business leaders, fawning before a representative of the Chinese Communist Party. Whose side is Musk on, anyway?

It can be hard to tell. Musk may have founded the world’s most important electric-vehicle company in the fertile entrepreneurial soil of the United States, but its future relies as much on China as it does on its home country. That’s why a pall of distrust has descended around Musk about his loyalties and intentions. The most obvious recent sign of this is the concerned response to Musk’s acquisition of Twitter. Critics fear that Musk will be compromised by his China business and go soft on Beijing’s abuse of the social-media platform to bully its opponents and spread misinformation.

This is not a groundless fear. The Chinese seem to believe they have leverage. Hu Xijin, an outspoken former editor of a Communist Party newspaper who recently had his account temporarily suspended for threatening House Speaker Nancy Pelosi, said he hoped that Musk’s Twitter would now remove his designation as “China state-affiliated media,” as well as “sincerely accept my speech, and respect the voice of Chinese society.”

Musk “thinks that to succeed in China, one must accede to the rules and requirements written by the Chinese Communist Party,” Isaac Stone Fish, the author of America Second: How America’s Elites Are Making China Stronger, told me. “He thinks that’s part of the rule book.” Musk may be an extreme example of this view, but he’s far from unique. Politicians in Washington now regard China as a strategic threat, but many American executives still see China as a strategic necessity. The lure of China’s market of 1.4 billion consumers remains potent enough to sideline concerns about geopolitical confrontation over Taiwan, Beijing’s worsening human-rights record, or the Communist Party’s rising hostility to the U.S. Take Starbucks, which recently opened its 6,000th store in China and plans to open 3,000 more by 2025. In all, American companies invested $8.4 billion in China last year, according to data from the US-China Investment Project, which tracks investment trends between the two countries. That’s lower than pre-pandemic levels, but still a significant sum.

Here lies the most complex conundrum facing U.S. policy makers as they confront expanding Chinese ambitions. By continuing to invest in China and share vital technology, American Big Business is, in essence, aiding and abetting the enemy and seeking profits at the expense of its country’s interests. “If U.S. national security was left up to the business community, we would be speaking Chinese tomorrow,” Kyle Bass, the founder of the investment firm Hayman Capital Management, told me.

Yet the issue hinges on how to define interests and security. To some analysts, the answer is to “decouple,” to separate the American and Chinese economies. Yet it is also important to U.S. global power for American companies to maintain their international competitiveness and, like it or not, others argue that this necessity requires a strong American business presence in China, the world’s second-largest economy. “You have to be a leader in China, if you are to be a global leader,” Craig Allen, the president of the US-China Business Council, told me.

That raises a crucial question: Can Washington really “get tough” with China if U.S. companies see their future in the Chinese economy?

For Musk, the answer is straightforward. Chinese drivers are forecast to purchase 6 million electric vehicles this year, and that’s a bounty too lucrative to pass up, whatever Washington thinks. “In order for him to reach his ultimate goals globally, he needs the China market to be pretty stable from a growth standpoint,” Tu Le, the founder of the consulting firm Sino Auto Insights, told me.

That explains Musk’s dual personality. At home, he is an outspoken critic of the Biden administration and a self-proclaimed defender of free speech. With China, where the government holds greater power over the life or death of a private enterprise and the authorities don’t believe in free speech, Musk apparently perceives a need to ingratiate himself to his authoritarian hosts. On the centennial anniversary of the Chinese Communist Party last year, he tweeted that “the economic prosperity that China has achieved is truly amazing … I encourage people to visit and see for themselves.” At home, Musk has mocked Biden’s plan to aid the U.S. electric-vehicle industry, but he’s had nothing but praise for China’s support of new technologies. “My frank observation is that China spends a lot of resources and efforts applying the latest digital technologies in different industries, including the automobile industry, making China a global leader,” he said in a virtual appearance at a conference in the country last year.

Musk is certainly not the only American businessman to check his principles at China’s border. John Donahoe, the chief executive of Nike, a company otherwise well known for championing social justice, once told investors, with an uncomfortable echo of Abraham Lincoln, “We are a brand of China and for China.” Allen explains such behavior as a matter of common sense. “It is not unusual when you are in someone else’s house to speak with a different voice than you would speak in your own house,” he told me. Musk himself told The Wall Street Journal last year that “Tesla has a good relationship with China,” but he added, “I don’t mean to endorse everything that China does—any more than I would, say, endorse everything the United States does. Or any country.”

Nevertheless, Musk seems to go out of his way to prostrate himself before Chinese authorities. At the end of 2021, Tesla opened a showroom in Ürümqi, the capital of Xinjiang—the province where the Chinese government has, by many accounts, carried out mass detentions and abuses of the Uyghur community. Only days earlier, Biden had signed a law that bars products from the region from entering the U.S., to counter the use of Uyghurs as forced laborers. The office of Republican Senator Marco Rubio, who has been active in this cause, charged that companies such as Tesla “are helping the Chinese Communist Party cover up genocide and slave labor.”

Musk has also taken a pro-Beijing position on the contentious issue of Taiwan, which the Communist regime considers an integral part of China. His solution, he recently told the Financial Times, is “to figure out a special administrative zone for Taiwan that is reasonably palatable.” By this arrangement, he imagined that the residents of the island “could have an arrangement that’s more lenient than Hong Kong,” where Beijing has crushed a prodemocracy movement since the national security law came into effect in 2020. That controversial stance unsurprisingly drew ire from Taiwan advocates. But Ambassador Qin Gang thanked Musk and suggested that Musk’s proposal fit with Beijing’s own ideas on unification.

Such comments have left an impression that Musk could be susceptible to Chinese pressure. Authorities in China apparently believe he is, because they have no inhibition about making their wishes known to him—as he admitted in his Financial Times interview, Chinese officials expressed displeasure with his decision to use the Starlink satellite network to provide internet access to parts of Ukraine after Moscow had cut it off when it invaded. (Beijing has supported Russia’s position in the conflict.) Tesla did not respond to several requests for an interview with Musk, nor did the company respond to requests for comment on specific questions.

So far, Musk’s good relations with the Chinese government have made for good business. Even as China has grown more adversarial toward the U.S., the Chinese government has rolled out the red carpet for Musk. In 2018, Tesla became the first foreign automaker to strike a deal with the government to open a manufacturing operation in China without a Chinese partner (and it remains the only one). The authorities in Shanghai, where Tesla operates a “Gigafactory,” granted Tesla’s local entity a preferential corporate-income-tax rate of 15 percent, rather than the usual 25 percent, according to the company’s financial reports. And during the two-month coronavirus-pandemic lockdown in Shanghai earlier this year, the status of Tesla’s factory became a bellwether for the city’s effort to keep its economy moving despite strict quarantines. Local officials helped disinfect Tesla’s facility, then transported thousands of workers there, to assist Musk’s reopening.

Musk has taken full advantage. Tesla led China’s market for battery-powered electric vehicles in 2021, with an 18 percent share, easily outstripping its Chinese competitors Nio and XPeng (neither of which reached 4 percent, according to the research firm LMC Automotive). Revenues from China doubled in 2021 from the year before to almost $14 billion, a quarter of Tesla’s global total sales. Tesla’s popularity in China keeps growing: Monthly sales hit a record in September, when more than 83,000 locally made cars were shipped to Chinese buyers. Tesla’s success in China has certainly become a big contributor to Musk’s immense fortune—which allowed him to buy Twitter.

The Chinese government has not welcomed Tesla out of some lingering spirit of warmer U.S.-China collaboration. It has supported Musk’s enterprise because China needs him as much as he needs China.

China’s leaders may be intent on overtaking the U.S. as the world’s premier superpower, but they still require American technology, expertise, and capital to achieve that aim. Attracting high-end manufacturing—which is exactly what Tesla does—is a priority. More than that, China’s leadership wants to make Tesla and other international businesses dependent on the Chinese market for the strategic leverage Beijing can gain over their home governments. President Xi Jinping once explained that it was necessary to “deepen China’s involvement in global industrial chains,” because “by doing so, we will develop effective deterrent against attempts by other countries to sever our supply chains.”

Musk fit neatly into China’s plans. “What the Chinese leadership saw and hoped for was that Tesla would be a catalyst for a monumental shift in people’s perception of electric vehicles in China,” Michael Dunne, the chief executive officer of the consultancy ZoZoGo and a former president of General Motors in Indonesia, told me. That hope was realized. Tesla transformed the image of electric cars from subsidized, functional transportation to the new cool, Dunne explained, resulting in a clear uptick in overall sales of electric cars in China after Tesla began selling locally produced models on a large scale in 2020. On top of that, Musk upgraded the entire sector by building a world-class supply chain in the country.

“The impact of Tesla has been an immeasurable plus for China,” Dunne added.

But threats to Musk’s China business are gathering on the horizon. Washington is losing patience with American companies that cooperate with China in ways that present risks to U.S. national security. In October, Biden imposed tough and wide-ranging controls on the sale of U.S. advanced semiconductors and chip-making equipment to China, a major shift in policy aimed at stifling Chinese efforts to develop its industry—and a sign of Washington’s new willingness to tread more heavily on private commerce to protect national security. Congress has considered, but so far not acted on, a proposal that would allow the government to screen outbound investment by U.S. firms, another possible policy change that clearly has China in mind. Add to this the heightened U.S. discomfort over China’s human-rights abuses, and walking the line between Washington and Beijing is becoming more difficult for Musk and other American business leaders. Musk faces the possibility that eventually Washington could erect hurdles that will obstruct his China plans.

“It’s astonishing to watch how long Musk has gotten away with this,” Stone Fish told me. “At some point, people won’t be able to lead these double lives in the U.S. and China.” He added that “we are likely on the cusp of a change.”

For Musk, though, the bigger threat may be from Beijing. Chinese policy makers are as intent as their U.S. counterparts to protect their economy from deteriorating relations. Xi has intensified a “self-sufficiency” campaign that entails a frenetic quest to develop high-tech industries, including electric vehicles, with large infusions of state aid. The aim is to replace foreign products with homegrown alternatives within the domestic market and foster Chinese champions to compete globally with Western rivals such as Tesla. The Chinese government has not spent a fortune to support its own electric-vehicle manufacturing capacity just to watch Musk ride off with the industry crown. Tesla may therefore outlive its usefulness to China and see policy makers roll up that red carpet. China’s regulators could easily discriminate against Tesla in favor of local competitors by delaying or denying the licenses or approvals Musk would need to expand in the country.

Souring U.S.-China relations are elevating the risks of investing in China more broadly. Major U.S. banks recently pledged to pull out of China if ordered to do so by Washington because of a Chinese attack on Taiwan. That was an indication of how the possibility of a conflict once considered remote has now become a real factor for corporate boards. Musk doesn’t seem overly worried at the moment. He continues to invest in China and recently completed an expansion of his operations in Shanghai, even though he acknowledged in his Financial Times interview the severe economic damage a war over Taiwan would cause.

“China is going to let [Tesla] build out Gigafactories … figure out exactly how Musk does it,” said Bass, of Hayman Capital, and then take advantage. He believes Tesla’s Chinese assets could even be nationalized. In the end, he said, “Musk will learn that he shouldn’t have been in China in the first place.”

Stay connected with us on social media platform for instant update click here to join our  Twitter, & Facebook

We are now on Telegram. Click here to join our channel (@TechiUpdate) and stay updated with the latest Technology headlines.

For all the latest For Top Stories News Click Here 

Read original article here

Denial of responsibility! Rapidtelecast.com is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – [email protected]. The content will be deleted within 24 hours.
Leave a comment