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What’s Going On Between Tesla & China?

Originally posted on EVANNEX.
by Charles Morris

Around the time Tesla announced plans to build the Shanghai Gigafactory, China’s government rolled out the red carpet. Relaxed regulations on foreign ownership, expedited building permits, even an offer of a residence permit — nothing was too good for Elon Musk and his team. China wanted the jobs and contracts for local suppliers that Tesla promised, and Tesla delivered.

Lately, however, some have been asking if the honeymoon is over. A scrappy new domestic model, the Wuling HongGuang Mini EV, appeared out of nowhere to steal Tesla’s first-place monthly sales rank. A young lady who was dissatisfied with the way Tesla handled her brake situation attracted a lot of attention with a high-profile protest at the Shanghai Auto Show. [Editor’s note: From what I’ve read, the brakes performed normally in order to get good traction. However, there’s no doubt this lady generated a lot of headlines and different interpretations within China and outside of it.] Now, the Global Times, a state media outlet, has claimed that “sales are expected to drop sharply” because of Tesla’s supposed problems with handling customer complaints.

Reporters have been asking China hand Michael Dunne whether Tesla is in trouble in the Middle Kingdom, but, as he reports in his latest ZoZo Go Newsletter, Tesla’s prospects in China remain brilliant. The automaker delivered 35,000 Model 3s and Model Ys in March, by far its best month ever.

As for the customer complaints, Dunne reports that, in a recent survey conducted by China Quality Network, the Tesla Model 3 received the fewest complaints of any model on the market. “When you look back over Tesla’s six-year history in China, you will discover that customer complaints are nothing new,” he writes. “What is different this time around is that China’s state media feels it has sufficient power to remind Tesla that it operates in China only at the pleasure of regulators in Beijing. Tesla started out with all the leverage. Now things are leaning in China’s direction.”

As many in the auto media have observed, Tesla needs China, and China needs Tesla. As a global automaker, Tesla needs to succeed in the world’s largest auto market. Meanwhile, China hopes to use electrification as its path to a seat at the top table of the industry, and its companies and engineers need the technology and experience they can gain by working with the world’s EV trendsetter.

Apparently, from time to time, the Chinese media finds it necessary to remind the Californians who’s boss. “When China was eager to secure Tesla’s investment into the Shanghai Gigafactory, the Global Times had nothing but praise for Elon and his company,” writes Dunne. “But now that the plant is built and the production continues to climb, the Global Times sees that Tesla needs China just as much as — if not more than — China needs Tesla.”

What exactly does China want from Tesla at this point? Expert China-watcher Dunne concedes that “you never know. The regulators and state media launch their mortars but there is no instructions memo attached. As we speak, you can bet the Tesla China leadership team is working all the back channels to discover what is required to get this storm to pass.”

Dunne suspects that Chinese authorities will press Tesla to accelerate “original engineering” in China, allowing domestic firms to get more involved in the development of key EV components, including advanced chips. As local control over sales, supply chains, and original engineering increase, Tesla’s leverage vis a vis China’s powers-that-be may continue to erode.

Dunne’s conclusion: “Tough arena, China.”

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