Tesla’s Honeymoon With China May Be Over But the Marriage Will Go On

Tesla Inc. can’t lose China. And Beijing can’t let Elon Musk go either.

This week, the American electric car company was at the center of a public outcry in China over the way the company handles customer complaints. On Monday, a Tesla owner staged a protest at the Auto Shanghai expo, a massive annual car show that tends to draw senior global auto executives and enthusiasts. The unhappy customer alleged that the brakes on her family’s Model 3 sedan were faulty and had caused a crash that landed her parents in the hospital.  had made the same complaint last month, to which Tesla responded by saying her father was speeding at the time, citing a police report. In Shanghai, security detained her. But, for Tesla, it was not a good look.

On Tuesday, after a high-level Communist Party legal commission said Tesla “has to face up to the torment of its Chinese customers,” the company issued an apology for not resolving the car owner’s problem. In the social media post, Elon Musk’s company said it would try its best “to learn the lessons of this experience.” Regulators are getting involved. Tesla said it “respects and abides by government agency decisions, respects consumers,” and would “cooperate with relevant agencies on all investigations.” Musk is beginning to sound like Jack Ma.

However, this wrangling with consumers and regulators is a temporary pall over the Tesla-hype in China. It may bring enthusiasm down a notch, but the reality is, even if an investigation starts, the relationship is much too mutually beneficial and financially intertwined to be dissolved or undermined.  

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China gives Tesla more than a pot of growing revenue. Beijing has extended heaps of capital to the company at favorable rates, subsidized land in an industrial zone so Elon Musk (who says he has been through “production hell” in the U.S.) can lean on the country’s industrial manufacturing prowess and, above all, a market full of electric car enthusiasts.

Tesla also benefits from a beneficial tax rate of 15% through 2023. In 2018. It signed two deals with the Shanghai government to build a high-end factory and an investment agreement to “promote commercialization of technological innovation results.” In 2019, a credit line with relatively loose terms was extended.

Beijing also benefits from Tesla’s corporate strategies.

As China opened up its electric vehicle market to foreign investment, Tesla was the first to go all in. The most hyped electric vehicle in the world was going to be Made in China. That added legitimacy to Beijing’s EV ambitions and the policies it has put in place to bolster the market. So far, no homegrown green car maker has emerged as a clear winner. 

Musk’s company helped raise the profile of Chinese suppliers. With Tesla’s entry into the country, the stock price of auto suppliers like Zhejiang Sanhua Intelligent Controls Co. and Shanghai Baolong Automotive Corp. has surged. The hope is that the parts they produce  — heat valves and tire-pressure monitoring systems —  will be used in cars made in the country. Tesla’s made-in-China Model 3, for instance, uses batteries made by homegrown giant Contemporary Amperex Technology Co., which commands over 20% of the EV battery market. Pushing Tesla into a corner would hurt a swath of Chinese companies.

What’s more, Tesla’s issues with consumer grievances aren’t new. In the U.S., Consumer Reports’ annual Auto Reliability Study stopped recommending Tesla’s Model S last year. The car maker ranked second to last in the study. Tesla has also had run-ins with regulators. When the company recalled over 36,000 cars in China earlier this year, state media said Tesla “shouldn’t be arrogant toward consumers’ questions.” It also noted that the firm “has shown respect for the potential of the Chinese market, but not the same level of respect is given to Chinese consumers.”

Investigations may come and go but Elon Musk’s ties with China are here to stay  — or at least, as long as the interdependence lasts. Bringing his company down a notch doesn’t mean he’s out. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Anjani Trivedi at atrivedi39@bloomberg.net

To contact the editor responsible for this story:
Howard Chua-Eoan at hchuaeoan@bloomberg.net

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