How China first saved and then absorbed Elon Musk

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In August 2018 Elon Musk he gave interview with New York Times about the many problems affecting Tesla, his electric car company, including investigations and complaints related to the safety of its factories and the Autopilot driver assistance system, as well as production delays. Proving how difficult that period was, the New York Times wrote that during the interview “Musk alternated between laughter and tears” (later it was Musk himself who specify that “there were no tears”).

In the middle of this crisis, which lasted from mid-2017 to mid-2019, Tesla was very close to bankruptcy: according to Musk it came as “a month” away from bankruptcy before recovering and starting a period of great growth. The company was saved above all thanks to the bet made by Musk, who decided to focus on opening a production factory (called “gigafactory”) in Shanghai, China, a country that represented a large market and could provide specialized and cheap workers. suppliers.

Musk was able to win over the Chinese authorities to get preferential treatment and a series of incentives for the establishment of Tesla in China. Among other things, he convinced the Chinese government to pass a law similar to the one that was used for a while in California, where the program is working. premium companies that produce zero emission vehicles and energy credits. In this way, those who produce vehicles that pollute the environment must buy credits from more sustainable companies, in a process that encourages the transition to electricity and economically supports companies that produce low-pollution cars. According to some estimates, California’s credit system has fruits to Tesla $3.7 billion by 2008. Musk’s goal was to replicate this in the Chinese market.

It was the beginning of a bad period for the relationship between Tesla (and Musk in particular) and China, a relationship that, according to some, however, has deteriorated and has begun to hurt the American company as much as the Chinese electric vehicle industry has recorded. power growth. Before all this, however, in January 2020 Tesla opened the Shanghai gigafactory, which was built in less than a year and started producing cars for the Chinese, European and Oceanian markets.

The spread of the epidemic did not stop the plant, which remained closed for only two weeks when Tesla’s historic factory in Fremont, California, was forced to comply with stricter rules. Musk complained about it a lot on Twitter at the time, where began to publish increasingly questionable and controversial content on Covid and the policies needed to control it. Depending on the length of time item by journalist Ronan Farrow published by The New YorkerMoreover, this phase will be the beginning of a process of political radicalization that has led Musk to support increasingly extreme positions in recent years.

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In July 2020, Musk hosted a podcast he judged so the difference between the United States and China: «China rocks. Energy in China is excellent. There are some very smart and hardworking people out there. They are not as arrogant and complacent as in America.”

For a few years the plan went as Musk hoped: in October 2021, Tesla exceeded one trillion dollars in stock market value due to a period of great growth that made Musk the richest person in the world. When the company expanded into China, however, the domestic industry began a period of significant – but rapid – change, which led to the current success of brands such as BYD, China’s leading electric car manufacturer. According to one reconstruction of New York TimesHowever, the warm welcome given to Tesla by the Chinese government and China’s electric car explosion will be closely linked.

China has treated Tesla well, securing land for the factory at low prices, lucrative loans and mortgages and the aforementioned tax incentives, as well as allowing it to operate without a Chinese manufacturing partner, something that has never happened before for the company. of foreign cars. . These favors were part of a Chinese strategy that aimed to produce what in the business world is called the “catfish effect”, from the name of a fish so aggressive that it pushes other fish to swim and move faster when introduced to a new place. environment.

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In economic terms, this phenomenon describes an increase in internal competition within a country – or sector – when a foreign and combative agency intervenes. This is what would happen in China, as the sharp drop in sales shows registered and Tesla in the first quarter of 2024 (-19% compared to the previous year) and the growth of domestic companies such as Xiaomi or BYD mentioned above, which offer models at lower prices (the latter especially at the end of 2023 has it is torn for Tesla the title of the largest electric car manufacturer in the world). The situation in the industry has changed quickly and significantly: in 2011, during an interview, Musk laughed when a journalist pointed out BYD as a possible competitor to Tesla. “Have you seen their cars?” Musk responded sarcastically.

Musk isn’t the only one who had low expectations for BYD. For many years, in fact, the company’s electric cars were “the laughingstock of the industry”, as it were. say al New York Times Michael Dunne, an expert on the Chinese auto industry. BYD’s growth was made possible mainly by the tax incentives of the Chinese government, which allowed it to take 40% of the car market in the country (according to some estimates it could control half of it by the end of 2024).

In the last few years, according to New York Times, China would build enough auto factories to double its domestic demand. This led to a trade war that forced Tesla to lower the price of its models, reducing revenue. The unexpected growth of BYD and other Chinese companies has led the European Union to launch an “anti-dumping” investigation, where dumping (from the English “dump”) he means “the behavior in which large companies import products into the European market at a price much lower than the market price”. At the beginning of the year, Musk himself commented on the growth of BYD and other Chinese brands, claiming that without the tariff policy “they will destroy most of the world’s companies”.

The Tesla factory in Shanghai has also generated sales for many Chinese companies that cooperate there, the so-called production chain of the automotive industry, which mainly concerns the LK Group. The company was instrumental in the development of “gigacasting”, an innovative method of manufacturing large structural parts of a car through aluminum casting (a technique in which molten metal is injected into a metal mold). In this way, instead of several parts of different sizes made with welding, rivets and glue, you get one piece. And time and cost are reduced. To achieve this, Tesla had ordered a “gigapress” from LK Group, the world’s largest death distribution machine, which was enthusiastically presented by Musk himself.

LK Group founder Liu Siong Song told them New York Times that he developed the technology by working with Tesla for about a year. By 2022, however, his company has sold gigapresses to six other Chinese manufacturers. Such changes in production methods made Tesla do to Chinese automakers what Apple did to the local electronics industry, especially the iPhone supply chain, which contributed to the emergence of many local companies that have worked with brands such as Huawei and Xiaomi.

Reconstruction of New York Times The claims of a “catfish effect” based on Chinese strategy did not convince everyone. Kevin Xu, investor and author of Interconnected, a magazine about technology and especially the relationship between China and the United States, underlined how Tesla’s success has destroyed companies like BYD over the years. China’s plan – if it is a plan – would therefore be very dangerous: “When Tesla’s electric cars started to leave the Shanghai gigafactory (…), BYD’s income decreased by half, sales decreased by 20% compared to the previous year and the company is about to die,” Xu wrote. Therefore, BYD had to invest in new designs and reliable batteries, thus making itself more attractive to the public. In short, the power that befell Tesla would be different from that determined by the “catfish” effect. and mostly associated with the company’s response to the crisis following the arrival of Tesla.

However, Tesla’s entry into the Chinese market has had a significant impact and has helped companies even outside the supply chain of the traditional automotive industry. Among all, that of the battery, a fundamental element for the electric car: in the United States, Tesla has a historic agreement with Panasonic but in China it uses mostly batteries produced by a company that was unknown until recently, CATL, which built one. factory next to Tesla and today is the largest battery manufacturer in the world.

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Meanwhile, the situation around Tesla continues to change. This week the company cut about 10% of its workforce (14 thousand people worldwide) and two senior executives left. they are gone, but he also announced some news. At the beginning of April Bloomberg wrote that Tesla was preparing to abandon the project of the so-called Model 2, an electric model with a price of 25 thousand dollars, information immediately denied by Musk, who sued. Bloomberg cheat

However, the news about the Model 2 seems to be well-founded and has caused consternation because it would undermine one of the original promises made by Tesla. In 2006, in fact, the company public on its website the “general plan” for the future, which can be summarized as follows: starting with expensive and elite cars (Roadster) to finance cars that are becoming more affordable for everyone, to producing an “affordable family car ” , Model 2. Martin Eberhard, who founded Tesla in 2003 with Marc Tarpenning, also criticized and called the decision a shame and more opportunities for Chinese companies. Despite the refusal Bloombergthe Model 2 project seems to have been shelved – if not abandoned – because Musk wants to focus on “robotaxis”, the self-driving cars he had in 2019. he promised they would be available “within one year”.