Elon Musk’s love for China may end when regulators go after Tesla

Elon Musk’s love for China may end when regulators go after Tesla

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The electric carmaker has been summoned by five Chinese regulatory agencies to answer questions about the quality of its Model 3 cars made in Shanghai, according to a statement released Monday by the State Market Regulation Administration (SAMR). He said that regulators were concerned about several problems with cars, including “abnormal acceleration” and “battery fires”.

The meeting is worrying for Tesla. Thanks to Musk’s procession of officials, Tesla was able to avoid heavy restrictions imposed on global rivals trying to do business in China. The company opened one of its huge auto factories in 2019 with great fanfare in Shanghai, and the country is now responsible for a fifth of its revenue.

But in recent weeks, Tesla has been heavily criticized in China for a series of problems involving their cars, culminating in Monday’s announcement.

“[We will] reflect deeply on the company’s operational shortcomings and comprehensively strengthen self-inspection, “said Tesla in a statement posted on the Chinese social media website Weibo in response to SAMR comments.

“We will strictly follow Chinese laws and regulations and will always respect consumer rights,” said the automaker, adding that “it will better contribute to the healthy development of China’s new energy vehicle market”.

It is not clear whether regulators intend to punish Tesla or change anything about how it operates in the country. But the controversy is a sign of how seriously Beijing takes regulation, even among the companies it seems to favor.

“It’s a slippery slope for Musk,” said Dan Ives, a technology analyst at Wedbush Securities. The CEO “built solid relationships within the country, but it should play well in the sandbox in China”.

Strong support

Tesla has been in China since 2013, but in recent years he has established a strong relationship with the Chinese government.

When the automaker was negotiating terms with the authorities in 2017 for the construction of its Shanghai Gigafactory, it was able to maintain full control – an unusual arrangement, since its peers were normally required to partner with Chinese companies if they wanted to open a local business at that time. (China announced in 2018 that it would relax the automotive sector’s rules on foreign ownership by 2022.)

Tesla initiated deliveries of the Chinese-made Model Y
Since then, Tesla has enjoyed strong government support. It was the only foreign manufacturer without a local partner to achieve a major tax reduction for its cars in 2019. The company also resumed production quickly during the coronavirus pandemic, in part thanks to support from the local government.
Musk has also won over Chinese officials and citizens, and is a welcome guest in the country. He danced on stage during the debut of the Model 3 made in Shanghai early last year, which went viral on Weibo. Prime Minister Li Keqiang once said he would be happy to give Musk a “green card for China” after the American businessman said he “loves China very much”.
Tesla’s forays into China paid off. The company sold $ 6.66 billion in cars in China last year, contributing 21% of its revenue, according to a recent company document. This is more than double what it sold in 2019, when it had not yet started making cars there.

A bitter perception

But in In recent months, Tesla’s perception in China has started to sour. Last November, the state news agency Xinhua attacked the company after one of its lawyers wrote to US regulators about a recall in China, blaming “driver abuse”.
“Tesla has passed responsibility for driving habits and regulatory pressure from Chinese users,” wrote Nan Chen of Xinhua in an opinion article published in Liaowang, a magazine run by the news agency. “This kind of ‘Tesla-style arrogance’ cannot be tolerated.”
Criticism escalated last month after a video went viral in China that appeared to show a Tesla employee telling a customer that an overload on the state power grid caused a cargo accident that damaged the car. A local branch of the power company responsible for the grid denied that it was to blame and told Tesla it should “carefully find out the cause” of the car’s problems.
Tesla wrote in his Weibo account last week that the video was edited and that the employee provided “several possible factors” for the car’s problems. Even so, the company apologized.

“We deeply regret, regarding the misunderstanding caused to Internet users and the problems” caused to the authorities in power, the company said.

State media, however, piled up after the power grid incident. Xinhua earlier this month criticized Tesla once again for its “arrogant attitude”, accusing the company of “passing the ball again”.

The Global Times, a state tabloid, also criticized the company.

“Although Tesla is arguably the most active US company in investing in China, the Silicon Valley-born automaker is far from understanding Chinese consumers, as seen by its attitude in a series of sparse accident reports, including explosions, drivers losing control and defective brakes, “read an article published by the Global Times.

Other challenges

Regulatory pressure is not Tesla’s only challenge in advancing China.

The company was the best-selling electric vehicle brand in the country last year, with 135,400 models 3 sold, according to the China Passenger Car Association.

But the competition is getting fierce. BYD overthrew Tesla as China’s best-selling electric car brand last month, and other automakers like Nio, Geely and Xpeng are trying to close it.

Although China has welcomed Tesla so far, experts note that, ultimately, Beijing has its own ambitions to lead in technology and other fields. In other words: since national companies are competitive, the country no longer needs foreign companies.

– CNN’s Beijing office contributed to this report.

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