In his latest video on HyperChangeTV, titled “Tesla is Winning the US/China Trade War,” Gali Russell gives us a quick summary of just how Tesla is winning in the US/China trade war. In fact, the timing of the Shanghai Gigafactory has perfect timing.
Before Gali dives right into the summary, he talks quickly about the trade war and that it’s affecting the cost of many different products coming in from China.
Gali then reminds us of an important 2018 Twitter thread that starts with a Donald Trump tweet and leads to a couple of tweets from Elon Musk.
Do you think the US & China should have equal & fair rules for cars? Meaning, same import duties, ownership constraints & other factors.
— Elon Musk (@elonmusk) March 8, 2018
I am against import duties in general, but the current rules make things very difficult. It’s like competing in an Olympic race wearing lead shoes.
— Elon Musk (@elonmusk) March 8, 2018
China charges a 25% tax for every auto import — this is in addition to any other taxes, the cost of shipping, and the initial overhead costs that a company like Tesla would have to cover before they could even make a profit. Also, add into the mix the time it takes to make the cars and the time it takes for the cars to get to China.
Gali points out an obvious fact, a challenge for not only Tesla but all other US auto companies: “This combination of a huge import tariff and a huge lag in shipping time and cost is creating a huge headwind for everybody trying to enter the Chinese market, especially a company like Tesla building in California. ”
So, what next?
Despite all of these tensions, Elon Musk and Tesla went to China. This move was continuously mocked by many news outlets and many of the short sellers claimed that this would be an ultimate failure. Instead, it’s proven to be a smart move that landed Tesla in a unique position.
Gali mentions that this is a very big deal because “the trade wars are causing a huge friction to anyone who wants to get cars into China. And now China is saying, ‘Wait, Tesla, come in and build your own factory here. You won’t have to deal with any tariffs or any shipping costs and you can sell cars domestically.'”
Another important thing that Gali points out is that China is one of Tesla’s largest markets. Tesla has made billions of dollars over the last few years despite the costs and current import tariff rates.
“I’ve been on the ground in China looking first hand at the electric vehicle market, at Tesla’s impact there, and there is no doubt this is a status symbol luxury brand that consumers in China really gravitate towards,” Gali says in the video.
One major thing that makes Tesla unique in this situation is the fact that Tesla Gigafactory 3 is the first factory that China has allowed in that is fully foreign owned. All the others are either Chinese or are joint ventures with Chinese companies. (That’s not just a milestone for the auto industry, but for all industries.)
“Previous until now, every single car sold in China was built by a Chinese automotive manufacturer or built by a joint venture between a foreign auto company and a domestic partner,” says Gali.
“China is literally changing their policies to cater to Tesla to allow them to come into the region. … Why does China want Tesla instead of every other automaker? It’s because they have the tech.”
Not only does China get the tech, but it also gets the green/sustainability feature. China wants to go electric as fast as practical, especially since it has a lot of pollution there. China has the world’s largest population (1.42 billion people) and has very high levels of air pollution. In 2007, a World Bank report showed that pollution in China caused 350,000 to 400,000 premature deaths per year.
Another thing that China gets out of this is its own electric vehicles built in China. Gali points out that with the trade war going on, it’s hard for China to get foreign vehicles imported.
Gali refers to a statement by Ark Invest when he says, “If we are going to be selling 20 million EVs a year in 2023, where is that coming from? Tesla’s going to be a couple of million and everyone else is dragging their feet. It’s China.”
Despite the geopolitical factors, Tesla is getting the “red carpet treatment in China.”
There are more examples that Gali covers in the video, including the fact that Tesla won exemption from the 10% purchase tax on vehicle sales in China. Also, Beijing plans to impose a 25% tariff on US cars and 5% on auto parts effective December 15, 2019 — around the same time the Tesla Gigafactory 3 in China plans to come online.
“The price of every other foreign car goes up while the cost of Tesla goes down.”
In the Tesla Q2 shareholder letter, Tesla states that “Chinese customers bought well over a half-million mid-sized premium sedans last year, this market poses a strong long-term opportunity for Tesla.” Gali points out that even though this is astounding, there is another market Tesla is tackling: the EV market in China.
How Is Tesla Winning The US/China Trade War?
As the trade war continues to heat up, China is favoring domestically produced cars, which in turn makes it harder for foreign companies to have their cars in the Chinese markets. Yet, China chose to give one foreign company its own factory, for the first time ever not at all owned by the Chinese. With Elon Musk meeting directly with China’s leaders multiple times, the company has the clear support of the Chinese government.
Gali explains that despite the negative things people have said about Elon Musk and Tesla, this situation resulted in a brilliant move by Tesla. It shows that not only is Musk a good businessman, he’s a brilliant businessman.
“As much as people say ‘Tesla is a fraud … how are they going to compete with foreign automakers? … Elon Musk is a horrible CEO he has high executive turnover’ I look at how the company has managed to navigate one of the most complex geopolitical scenarios in modern history and actually turn its incredible friction between its two biggest markets into a massive competitive advantage is brilliant management. It’s brilliant execution by Tesla, and it’s a reason why I love to be invested in this company,”
China is doing all it can to support Tesla’s Gigafactory 3 because China knows that if Tesla succeeds there, so will China. China will help cut air pollution levels as consumers choose electric over gas. This isn’t just a win for China or Tesla, but this is a win for Americans as well. We win because, despite the trade wars — it’s an American company that China has given this chance to.
And Tesla shareholders also win.
This is how Tesla is winning the trade war.