Tesla & The China Connection

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Critiqued by many for not doing enough during the COVID-19 pandemic, Elon Musk delivered on a promise to provide 1,200+ ventilators for emergency respiratory care. This initial wave was not manufactured by Tesla in the US, but rather, purchased from China. A month earlier, the famous CEO celebrated the delivery of the first Made in China Tesla Model 3 with the then Shanghai-mayor in a Hollywood style extravaganza. Tesla’s connection to China has brought the world’s most elite electric vehicles to the world’s second-largest economy, and the rare relationship is getting more robust by the month.

It’s the kind of reciprocity that many corporations are craving right now in the tenuous financial marketplace. Chinese ventilators are just the beginning for Tesla.

Yup, China had an oversupply, so we bought 1255 FDA-approved ResMed, Philips & Medtronic ventilators on Friday night & airshipped them to LA. If you want a free ventilator installed, please let us know!

— Elon Musk (@elonmusk) March 24, 2020

California Governor Gavin Newsom was impressed with Musk’s quick work.

“Elon Musk: how about this? I told you a few days ago he was likely to have 1,000 ventilators this week. They arrived in Los Angeles and Elon Musk is already working with the hospital association and others to get those ventilators out in real time. It’s [a] heroic effort.”

Newsom added that a total of six California companies have offered their facilities to manufacture surgical gowns, and he’s been conversing with 25 additional providers that may be able to print 3D masks for health-care workers.

But it was Musk who delivered almost immediately, due to the China connection.

Continued Shanghai Gigafactory Production During Coronavirus Pandemic

Thermometers. 10,000 surgical masks. Cases of disinfectant. These and other materials allowed Tesla to restart its factory near Shanghai after the COVID-19 pandemic took hold in China. China’s government helped Tesla to secure the sought-after supplies it needed to reopen and continue manufacturing — at a time when many of its automotive competitors were still shut down.

Beijing prompted local authorities to use multiple available resources to return the national workforce to full capacity last month, with reports indicating that officials in Lingang singled out Tesla as an example of their success in helping the area’s industry to recover. Chinese TV and internet channels were rife with footage of locally built Model 3 sedans being assembled amidst the epidemic.

Why are these Health Precautions Necessary for Tesla Shanghai Workers — and Others?

Why was it important for the Gigafactory 3 crews to obtain thermometers, masks, and disinfectant?

The New York Times describes what has become “an iconic image of the coronavirus outbreak” in China: a masked official aiming what appears to be a small white pistol at a traveler’s forehead. To determine the spread of fevers in an effort to prevent the spread of the deadly coronavirus, thermometers are necessary. Will Elon Musk be asked next to invest in smart thermometers to track the spread of the coronavirus? We’ll see.

The World Health Organization outlines reasons why it may be necessary for workers and individuals to wear masks during the coronavirus pandemic. They note that masks are effective only when used in combination with frequent hand-cleaning with alcohol-based hand rub or soap and water.

The Center for Disease Control and Prevention defines and distinguishes the terms “cleaning” and “disinfecting.”

• “Cleaning refers to the removal of germs, dirt, and impurities from surfaces. Cleaning does not kill germs, but by removing them, it lowers their numbers and the risk of spreading infection.
• Disinfecting refers to using chemicals to kill germs on surfaces. This process does not necessarily clean dirty surfaces or remove germs, but by killing germs on a surface after cleaning, it can further lower the risk of spreading infection.”

The Tesla Relationship, The China Connection

China is home to the world’s biggest electric vehicle market, and Tesla’s Shanghai factory is a prominent symbol of that government’s motivation to introduce the national economy to global competition and to be an EV leader.

One of the perks the Chinese government offered to Tesla was an exemption from the national 10% sales tax on cars. In the past, only electric vehicles made by Chinese companies have been exempt.

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The success of the Shanghai factory is imperative at a time in which reports are emerging that Tesla plans to reduce on-site staff at its Nevada battery plant by around 75% as a result of battery partner Panasonic’s announcement that it would scale down operations due to the coronavirus pandemic. Last week, Tesla revealed plans to temporarily suspend production at its EV factory in the San Francisco Bay Area and at Gigafactory 2 in Buffalo — the latter of which produces solar roof tiles and now is adding ventilator production.

The Lead-Up to Tesla’s Shanghai Response

On January 30, 202o during the earnings call for FY19 and 2019 Q4, Tesla CFO Zach Kirkhorn was understated about the effect of the pandemic on production at Tesla’s Shanghai Gigafactory.

“At this point, we’re expecting a one to one-and-a-half week delay in the ramp of Shanghai built Model 3 due to a government required factory shutdown. This may slightly impact profitability for the quarter, but is limited as the profit contribution from Model 3 Shanghai remains in the early stages. We are also closely monitoring whether there will be interruptions in the supply chain for cars built in Fremont. So far we’re not aware of anything material.”

January was also the month in which the Tesla Shanghai Model 3 jumped straight to the #1 spot on China’s battery electric vehicle production charts.

But the stellar sales figures were short-lived once the effects of the coronavirus became understood. When customers sheltered-in-place, Tesla Shanghai EV sales — as well as other EV and automakers in China — plunged. Chinese manufacturing plunged to a record low in February.

Chinese authorities offered assistance to Tesla in a variety of ways:

• protective materials;
• dormitories for scores of Tesla employees;
• transport to and from the plant;
• online interviews that resulted in more than 100 new workers since the outbreak; and,
• virus screening and online interviews.

Final Thoughts

The irony is not lost on many people that the coronavirus pandemic originated in China’s Hubei province, and now China is offering assistance to countries around the world that are trying to stave off the effects of COVID-19.

Even so, the China connection is a major contributor right now to Tesla’s solid foothold in the marketplace. Morgan Stanley, as originally reported by Forbes, upgraded its rating on Tesla’s stock to the equivalent of a “hold” from its former position of “sell.” The thumbs up sign is one more indication that Tesla seems well-positioned to maintain a stable hold on the various elements of its business umbrella during this COVID-19 nightmare — with the China connection a significant element of its financial picture.