Why Is China So Important For Elon Musk And Tesla?

Local EV makers have been thriving in China since Tesla moved in.

By: EVANNEX

Jan 3, 2022 at 7:59am ET

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Posted on EVANNEX January 03, 2022, by Matt Pressman

Elon Musk always had a vision for Tesla in the Chinese market. And, according to the Wall Street Journal, "President Xi Jinping defiantly pledged to make China the world’s future innovation and industrial center. Key to his plan was Elon Musk."

Above: A look at a Tesla Model 3 in Qinghai (Twitter: Tesla Greater China)

"Mr. Xi viewed the South African-born entrepreneur as a technology utopian... and saw his Tesla Inc. as a spearhead that could make China a power in new-energy cars. Mr. Xi rewrote the rulebook to allow foreign companies sole ownership of auto ventures so Mr. Musk would open an electric-vehicle factory in Shanghai," reports WSJ.

Furthermore, "Authorities 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."

It's reported that, "Chinese leaders had grown frustrated with domestic electric-vehicle companies’ performance and saw Tesla as an opportunity to reset the country’s auto industry."

In turn, "Tesla’s arrival whetted people’s interest in electric vehicles. The 2019 launch of the made-in-China Tesla Model 3 helped convince consumers such vehicles were a viable alternative to gasoline cars."

Above: As we transition into 2022, a look at the thriving Tesla community in China (YouTube: Tesla Greater China)

“China’s game isn’t to let Tesla win,” said Bill Russo, founder of Automobility, a Shanghai-based consulting firm. “China’s game is to make the domestic industry compete.”

And it's not surprising because "Mr. Musk remains personally popular in China, where people accustomed to conformity admire his maverick behavior... [and] Chinese tech entrepreneurs look to him for inspiration, tracking moves of the 'Silicon Valley Iron Man.'"

According to WSJ, "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."

And that's not all. "The Shanghai plant now is Tesla’s main export hub and helped the company introduce its Model Y to Europe... The factory makes more vehicles than Tesla’s plant in Fremont, Calif., Mr. Musk said in October, and underpinned the company’s record global deliveries in the third quarter."

Above: Another look at a Tesla Model 3 driving in Qinghai (Twitter: Tesla Greater China)

Meanwhile, local EV automakers like NIO, XPeng, and Li Auto are now thriving since Tesla's arrival. “Pre-Tesla, nobody believed that a Chinese brand could be riveting,” said Michael Dunne, chief executive of consulting firm ZoZo Go. Yet Dunne expects overall sales in China of new-energy vehicles to be roughly 3.1 million this year, more than double last year’s.