Elon Musk Needs China, But Beijing May Soon Dump Him

With the US tightening technology exports to China in 2018, President Xi Jinping defiantly pledged to make China the world’s future innovation and industrial center. Key to his plan was Elon Musk, Lingling Wei, Rebecca Elliott, and Trefor Moss wrote for the Wall Street Journal (WSJ).

Photo Insert: A Tesla charging station in Shanghai, China

Xi viewed the South African-born entrepreneur as a technology utopian with no political allegiance to any country, according to officials involved in policy-making, and saw his Tesla Inc. as a spearhead that could make China a power in new-energy cars. Xi rewrote the rulebook to allow foreign companies sole ownership of auto ventures so Musk would open an electric-vehicle factory in Shanghai.

China showered him with cheap land, low-interest loans, and tax incentives, expecting in return that Tesla would groom local suppliers and bolster lagging Chinese electric-vehicle players, say people with knowledge of the talks between Beijing and the company.

Today, Tesla likely makes more than half its vehicles in China, suggest calculations based on the company’s third-quarter production and delivery figures and China Passenger Car Association data.

Chinese sales helped propel Tesla to its first full year of profitability in 2020 and provided roughly a fourth of Tesla’s revenue in the first nine months of 2021. Musk, meanwhile, has cemented his place as the world’s wealthiest person.

Musk has hailed China’s toughened data laws, and his company issued a humbling apology in April. A driver at an auto show publicly blamed Tesla brakes for an accident, after which China’s top legal-affairs agency chimed in, calling the company arrogant.

A short time later, Tesla said on China’s Twitter-like Weibo platform: “We apologize for failing to resolve the problem of the car owner in time. We will try our best to learn the lessons of this experience.”

But Tesla is facing an increasingly difficult business environment in China now. It has drawn wrath from domestic rivals over what they see as preferential treatment, suffers criticism of its vehicle quality from drivers and Chinese officials, and has been caught up in the government’s sweeping crackdown on big tech.

China is pressing foreign firms to meet an ever-more-stringent policy on data security. It must retain inside the country all digital records gathered from local customers and must ask authorities for approval before updating certain software on cars in China.

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 (SEC) and mocked President Biden in tweets, once calling him a labor union sock puppet.

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