When the controversial CEO of a global automaker becomes the Best-Friend-in-Chief and helps to define national policy, there might be some bleed-over into conflicts of interest. It seems that China may be betting on exactly that, especially as Tesla waits for the Chinese government to approve the use of its Full Self-Driving software on Chinese roads.
Welcome back to Critical Materials, your daily roundup for all things electric and automotive tech. Here's what's on the docket today: regulatory approval for Tesla's FSD software in China is expected to be used as a bargaining chip in the impending trade war, President Trump pencils in tariffs for April 2 because it's not April Fools' Day, and BYD looks to take on Europe's automakers in the EU by offering luxury brands and PHEVs. Let's jump in.
30%: China Will Use Tesla's Full Self-Driving Regulatory Approval As A Bargaining Chip
Tesla's Full Self-Driving software has been walking a tightrope in China. With tough-to-solve problems on the road and regulatory hurdles a-plenty, Tesla is anxiously awaiting the greenlight from Chinese regulators to begin testing out its flagship software on the nation's roads. But there's just one issue: according to a new report from the Financial Times, China could be preparing to use the approval of FSD as a bargaining chip in the escalating U.S.-China trade war.
China was initially expected to grant Tesla the ability to use its software in China sometime in Q2 2025. Now, we're not quite there yet, however, regulators are now reportedly indicating that there is "no timetable" for approval, meaning an indefinite delay on approval that could perhaps hinge on more favorable trade conditions with the U.S.
Here's the scoop from the Financial Times:
Chinese authorities are contemplating using the approval of Tesla’s autonomous-driving licence as a bargaining chip in trade negotiations with Trump, said two of the people with knowledge of the delay, adding that this was the main reason for the hold-up in granting the permit.
The approval could still come soon, depending on how trade negotiations developed, one of the people added. But another said that some people at the company believed a speedy consent was unlikely unless there was “a major breakthrough or concession” in trade talks.
The Ministry of Industry and Information Technology, which regulates smart vehicles in China, Tesla US, Tesla China and Musk did not respond to requests for comment.
The situation illustrates how Musk’s close relationship with Trump, to whom he is a key adviser and donor, could backfire on the world’s richest man and parts of his business empire, including in Tesla’s most important market outside the US.
The U.S. hasn't exactly been kind to China lately. Between the 100% tariff on imported cars, the exclusion of vehicles that use certain percentages of Chinese battery materials from the EV tax credit (for however long that remains around) and even the recent blanket 10% tariff on imports, there's a reason why China is getting ready to play hardball.
However, using Tesla as a potential play puts the automaker (and Musk) in a funky quid pro quo bind that isn't going to be easy to navigate without onlookers screaming of nepotism.
Let's be clear here—Tesla needs FSD approval in China. Rival BYD recently announced a way, way cheaper version of FSD that was coming to its cars in China, meaning that competition is coming in hot for the American EV manufacturer. It also means that a substantial amount of revenue is behind a locked door for Tesla. If Tesla could gain approval for FSD in China, it could unleash a substantial influx of cash from anyone willing to drop $99 per month on a subscription to the software.
Without Beijing's approval, the deployment of Tesla's FSD is dead in the water. And even if Beijing does give Tesla the go-ahead, then the automaker needs to figure out how it will handle training its FSD model in China which doesn't allow for the exporting of its driving data to Tesla's Texas campus that houses its huge AI data center. Perhaps this could be another push from China to dismantle Biden's final Artificial Intelligence Diffusion rule that limits the export of U.S.-sourced chips.
60%: Trump Pencils In Auto Tariffs For April 2, Because, You Know
U.S. President Donald Trump is continuing down his tariff warpath, and, yes, despite constant warnings and pushback from the auto industry, cars are still directly in his crosshairs.
Closing out last week, Trump announced that he is considering, yet again, slapping new tariffs on automobiles as early as Q2 2025. Trump specifically said that he is considering bringing these tariffs live on April 2, which—let's be honest—isn't exactly reassuring when this is the context it was brought up in:
"I would have done them on April 1," said the President during an executive order signing session on Friday according to Reuters. He then continued: "But we're going to do it on April 2."
Trump gave no justification for wanting to implement the tariffs on the day after the second quarter officially starts. And considering that it's also a Wednesday, perhaps this is Trump's way of making sure the world knows that his tariffs aren't a joke because it's not on April Fools' Day.
This latest threat from the Executive Branch is just one of a dizzying number of trade actions taken under the current administration in less than 30 days. The admin has also imposed a 10% blanket tariff on Chinese imports, eliminated and reinstated the de minimis exemption, announced 25% import tariffs on Mexico and Canada before delaying both in the eleventh hour, set a start date for 25% duty fees on imported steel and aluminum, and developed a team to handle retaliatory tariffs on U.S. goods.
Confused yet? Well, you're not alone—so is the auto industry.
Ford CEO Jim Farley said that the President's decision to look at all vehicle imports is an "important step forward," following the tariff announcement. However, just days prior, he mentioned that Trump's decisions had also created "a lot of cost and a lot of chaos" in the auto market. It's clear that Ford, like most domestic automakers, is sweating what could happen.
At the end of the day, these tariffs could just be an empty threat in an attempt to re-open the same negotiations used to pen the USMCA. Trump once described his negotiated deal to be the "greatest" trade deal ever and may want a second chance at re-writing history during his second term in office. At least that's what some analysts believe.
But if they're not empty and tariffs truly are on the horizon, it's time for consumers to buckle up. It won't just be eggs scraping the bottom of the wallet, but nearly every aspect of the auto trade, too (think: car purchases, repairs and insurance).
90%: BYD Has Germany's Luxury Brands In Its Crosshairs
Europe had its chance to play nice with China's automakers. But instead of encouraging competition, the EU (much like the U.S. and Canada) decided to implement protectionist tariffs to encourage consumers to purchase European options instead. Well, BYD is tired of waiting for its turn in the sandbox and officially has a plan to reshape the playground rules.
BYD is an absolute juggernaut of a brand back home. It's now planning to bring its full weight to the European playing field and dismantle the coveted German luxury establishment one premium EV at a time. With two European factories on the way and an aggressive plug-in hybrid strategy brewing, the Chinese brand is quickly looking to gear up for a full-scale invasion of a market where BMW, Mercedes-Benz, and Porsche have dominated for years.
You may have noticed that BYD has been steadily chipping away at the European market for a while now. BYD's best-seller in the EU last year was its compact SUV, the Atto 3, followed by its large SUV, the Seal U. Both were offered in full-electric and PHEV drivetrains. Granted, neither was a huge hit with combined sales just south of 25,500 units, but they represent something bigger: European customers (just like Gen Z car buyers in the U.S.) aren't just turning their noses at Chinese brands.
Now come the premium brands.
BYD is planning to go toe-to-toe with Europe's best-selling German brands by rolling out two of its premium marques in the market. Both Denza and Yangwang will soon make an appearance in Europe. Denza targets premium German models as a whole while Yangwang will specifically market to buyers of SUVs built by Land Rover and Mercedes-Benz, as well as take on the sports car market.
The brand also knows that it can't just sling BEVs at the rest of the world and guarantee success. Instead, it's planning to take a step back to hybrids and offer a significant number of PHEV options so hesitant buyers will open their wallets to the Chinese brand. A smart strategy, which it seems that many other legacy automakers are finally accepting in recent weeks given the weaker-than-anticipated uptick in EV share over the last year.
Make no mistake here—BYD isn't coming to the EU to be a niche player. It's bringing its high-tech EVs, PHEVs, and luxury cars to take on Europe's best. Moreover, it's doing so with aggressive pricing and local production to best protectionist tariffs meant to keep the brands out of the market. Germany's automakers have had a stronghold on the EU (hell, the world) for decades, and now China is here to shake things up.
The real question here: are Audi, BMW, Land Rover, Mercedes, and Porsche ready for the fight?
100%: How Can Germany's Luxury Brands Save Face?
The Germans have been running the luxury show for decades. If I tell you to envision a luxury marque in your head, you're probably picturing a handful of brands. Most (if not all) hail from the same industrial jewel on Deutschland's crown: its rich auto manufacturing sector.
Back home, China has broken the mold. German brands are feeling the heat in Asia as domestic players are taking a chunk out of one of the largest luxury markets on the globe. Now, those same brands are coming to the German's home turf to play ball.
Here's what I'm wondering: with better tech, more polarizing styling and some pretty darn impressive numbers (both range and power), China is really making a case for its brands. How exactly can Germany compete with some of the more upscale Chinese cars hitting the market today?
Let me know your thoughts in the comments.
