Good morning from Hong Kong.
Tesla has long been the driving force of the global electric vehicle revolution. In his newsletter this week, The Information’s Steve Levine observes that “Tesla created the EV industry in 2008 with the release of the Roadster, and…has driven it forward with a succession of vehicles since then, pushing major automakers into a full-scale panic to catch up and inspiring China to build up its own EV industry.”
Steve contends Tesla abdicated that pioneering role in February when CEO Elon Musk pulled the plug on plans to produce a $25,000 electric vehicle for mass-market consumers. The project hasn’t been officially canceled. But Musk says he now wants to prioritize the development of an autonomous Robotaxi as part of a broader strategic pivot in which Tesla transforms itself from a car company into a developer of artificial intelligence products.
Steve worries Musk’s strategic swerve has thrown “the nascent EV industry into reverse.” He lists a half dozen instances since February in which global auto manufacturers and suppliers have backed off from multibillion-dollar investments. He quotes former Tesla executive Gene Berdichevsky as warning that Elon’s decision will slow EV adoption in the West by five years “because there’s a ripple effect of the pressure that Tesla creates on everybody else.”
But Chinese EV makers aren’t slowing down. Hours after I read Steve’s piece, a newsletter by former GM executive Michael Dunne landed in my inbox. It’s headline: “China is Done with Global Carmakers.”
Michael has long argued that, though they once dominated China’s car market, foreign automakers including GM, Ford, Volkswagen, BMW, and Toyota are now getting systemically muscled out by domestic rivals. Among the indicators of impending doom: plummeting sales, mounting losses, and, in the case of Stellantis’s Jeep operations, bankruptcy and “ignominious retreat.”
The speed and scale of that reversal is astonishing. And the key to understanding it, according to Michael, is that China has made a “massive and abrupt shift to electric vehicles.”
As Michael notes, the EV share of total car sales in China will rise to almost 50% this year, up from 6% in 2020. “China has sprinted from 1 million to more than 10 million annual EV deliveries in just four short years,” he writes. “Global automakers were caught flat-footed on EVs, lulled into complacency by years of winning at selling gasoline-powered vehicles. Chinese automakers, in contrast, seized on the shift to electrics.”
Tesla was instrumental in spurring the development of China’s EV sector. In 2018, the company became the first-ever foreign carmaker to be invited to set up a factory in China without having to take on a Chinese partner—an extraordinary concession followed by many more: tax breaks, preferential loans, and expedited administrative approvals.
The Shanghai factory was a sweet deal for Elon, but also a canny move by China. Officials aimed to create a “catfish effect”—by dropping a big fish, Tesla, into the tank they hoped to frighten the other fish, China’s homegrown EV producers, into swimming faster.
In China, Tesla can still play that role—for now. When Musk turned up in Beijing in April he was granted an audience with the Communist Party’s No. 2 leader, Li Qiang. Officials later signaled they’ll remove restrictions banning Teslas from entering Chinese military complexes or other key government sites because of security concerns and will allow Tesla to make a version of its “Full Self-Driving” software available to Chinese customers. Both moves would force China’s other fish to swim faster.
In May, Chinese officials launched a pilot program in the Shanghai district where Tesla’s factory is located that will allow companies registered there to transfer certain kinds of data overseas without having to clear cumbersome security reviews. That is sure to enhance the appeal of Teslas sold in China—and could prove a giant boost to Musk’s dream of transforming Tesla into a global AI powerhouse.
But Tesla is no longer the only big fish in the China tank. Now the U.S. company must compete with a slew of heavily subsidized local rivals, led by Warren Buffett-backed BYD, which are eating into sales—in China and overseas markets. BYD overtook Tesla in the last quarter of 2023 as the top global seller of electric vehicles. Counterpoint Research predicts the Chinese company will top Telsa in sales for the full year in 2024. Meanwhile, at least 10 other Chinese automakers or suppliers have unveiled FSD-like driver assistance systems.
Keep swimming, Elon. Just keep swimming.
More news below.
Clay Chandler
clay.chandler@fortune.com
Follow on LinkedIn
