A Morgan Stanley analyst thinks Tesla will eventually wave China bye-bye.
Tesla is proud to be the only foreign company that wholly owns its factory in China. A rule change helped it be the first and, so far, the only one to do that. Before this change, anyone willing to manufacture cars there had to associate with a local company. But will Tesla still be able to sell cars in China with the commercial tensions the country has with the US? A Morgan Stanley analyst bets it won't.
Adam Jonas goes even further in his analysis, as you can see in the video above. Yahoo Finance's interview with him is long, but we have decided to start the video precisely at the point in which he mentions Tesla may stop selling in China for good by 2030. Morgan Stanley's analyst has a reasonable point to think that.
“Can you imagine a Chinese ‘internet-of-cars’ autonomous network operating in the streets of Boston in ten years? Of course not. Wake up. It’s not happening. So this idea that the Chinese are not allowed to use AI network machine learning data privacy networks in the States but it is ok for us to do it there is just a fallacy.”
This raises a very intriguing discussion. Huawei and Tik Tok are just examples of Chinese companies the US government does not trust. How will the Chinese government deal with American companies, such as Tesla?
A recent case of a Chinese driver that could control five European cars – probably due to a glitch – shows Tesla has a single system to handle all its vehicles worldwide. A glitch or a hacker attack could eventually expose Chinese drivers in the US or American drivers in China.
This sort of situation could also affect Chinese companies willing to sell cars in America, such as Nio and Xpeng. If Tesla wants to be safe in both countries, it will probably have to ensure data from either market will stay within its borders.
An even more challenging scenario would be if things went really sour between the US and China, and companies in either country were pressed to choose where to stay. Like Tik Tok, they could be forced to sell their operations in a country to local entrepreneurs.
China is currently the most prominent car market in the world, with 25 million units in 2019. Analysts there predict it can peak at 45 million units one day.
Which market would most companies choose, China or the US? GM's biggest market is China. Tesla may eventually sell most of its cars there as well, mainly because the Chinese government has a focus on electric vehicles. An old saying states that money presents no national loyalty.
Jonas insists this data privacy issue may even become a huge issue, which is ironic. Tesla and its supports often claim the company is more than an automaker: it would be a tech company. If that is really the case, China may start seeing it like the US sees Chinese tech companies and propose to ban it.
“In our opinion, it is not in step with the national security discussion that we’re having with our intelligence community contacts when we talk about AI, cyber, and space. We think that Elon has been invited in and then he realizes over time things will change. There could still be an umbilicus where Tesla could own a stake in a listed entity. We do think that all US companies (it is not a Tesla-specific issue) will be walled off from knowing where the party is operating in China.”
That possibility is one of the reasons he believes Tesla shares do not worth more than $272. He also says that Tesla would need a much larger scale to justify the current share prices, as well as fulfilling its full autonomy promises.
There's no way to predict what will happen if China and the US do not reach a peace treaty regarding trade practices. According to Jonas, what is certain is that American companies will suffer in China as much as Chinese companies are suffering in the US. And that may hurt Tesla in a crucial market.