Elon Musk’s ‘Chinese dream’ soon blooms and fades

As reported, the Chinese government has just officially required that nearly all of Tesla’s electric vehicles sold here – about 285,000 units must be recalled to fix safety problems.

Specifically, the General Administration of Market Administration of China (SAMR) said in a statement on Saturday that the decision concerns 211,256 Model 3 models as well as 38,599 Model Ys made in China and 35,656 imported. The US automaker only started shipping Model Y models in January of this year, so the recall generally affects most people who have purchased the model.

Chinese authorities say that Tesla vehicles have problems with the cruise control system, the driver can easily activate the cruise control function by mistake and may allow sudden acceleration. In some cases, this condition can cause a road crash. According to SAMR, Tesla will contact owners of vehicles affected by the recall for a free software upgrade.

Although Tesla has apologized via the official customer support account on Weibo saying that it “will continue to improve safety, strictly complying with the requirements of the state”, but the recall of the vehicle this time. have a great impact on the company.

The child is well pampered

On February 10, last year, when the Chinese government lifted the order requiring factories to shut down (which was meant to prevent the epidemic), much of the country remained very quiet. Transport operations have not been able to resume, and many workers are stuck at home.

However, in a swampy area on the outskirts of China’s largest city – Shanghai, Tesla’s Giga factory is still very busy. Thousands of workers have returned to the line, many of whom have traveled from their hostels to the factory by government-supplied buses. They are equipped with a lot of N95 masks: unlike many other businesses, Tesla is allocated a much larger number of masks. The plant is also cleaned with detergents that need to be approved by the regulator before they can be purchased.

In the first week after restoring production while a series of other car factories such as Toyota and Volkswagen could not fully reopen, Tesla Shanghai produced about 1,000 units. By March, production increased to 3,000 units per week, higher than the pre-epidemic level.

Tesla’s speedy return is closely related to the good relationship between the world’s largest car maker and the Chinese government since 2018 until now, when Tesla announced plans to build a factory. in Shanghai.

Time and time again, Tesla receives special treatment that other foreign companies struggle to get such as tax breaks, cheap loans, license to own the entire operation in Vietnam. China and is also supported to accelerate the construction of the factory.

A prime example is China’s 10% sales tax exemption for Tesla’s China-made Model 3 electric vehicle. This offer is the clearest demonstration of how Beijing “spoiled” Tesla.

The rice is not good, the soup is not sweet

Recently, Le – founder of Sini Auto Insights – a magazine that tracks the Chinese electric vehicle market has witnessed increasing customer dissatisfaction with Tesla. However, in an interview with TechNode earlier this month, he dismissed concerns that the company’s loud customer service and safety comments on social media would slow down the pace of business. company revenue growth. He has a reason to say so because aside from the unhappy customers, there are still “tons” of Tesla lovers.

However, things in China change very quickly, especially when the government is deciding it is time to fix things. Over the past few weeks, Beijing – through state media – has publicly criticized Tesla and those are the most important words.

“Xinhua and People’s Daily have publicly stated that Tesla has been indifferent to the interests of consumers,” said Anne Stevenson-Yang, founder of investment firm J Capital China.

“Critics say that Tesla has canceled its investment commitment (14 billion yuan) and its commitment to pay taxes (2.23 billion yuan annually). The company also failed to meet its revenue target. Massively Critics have joined the attack, demanding that Tesla be kicked out of China, just like Google. More ominously it is not just the opinion of a few writers, this is becoming an organized campaign against Tesla. office,” Stevenson-Yang said.

Le agrees with that view and says Beijing has the right to “bring something up and slam it down. Complaints on social media are one thing. But when state media also get involved, it’s obvious. become a problem for them.”

Meanwhile, Tesla desperately needs China. Earlier last month, Tesla reported record first-quarter earnings, but the stock fell 4% on the day. The reason is because this profit is due to the sale of Bitcoin and the huge amount of emission credits. As competition heats up in the US and China in the second half of the year, the credit market is likely to start cooling down. Wall Street wants to know how the company can continue to make a profit then. For the company, winning the Chinese market is an important part.

Daniel Ives, an analyst at Webbush Securites with a $1,000 price target for Tesla shares, writes that the main reason for confidence in Tesla stock is “Tesla’s ability to penetrate deeper into China.” “.

“As China is critical to Tesla’s global success. Elon Musk will have to ‘be nice’ in China to ensure Tesla’s growth doesn’t slow down in this market. China will take over” 40% of EVs will be delivered globally by 2022.

In a sense, Tesla and Beijing are both cooperating and confronting. Beijing welcomes Tesla’s attention to the electric vehicle market. But in the end, they want national brands to eclipse Tesla.

Currently, China’s electric vehicle market is dominated by Tesla, SAIC-GM-Wuling Automobile Co. and BYD. In March, these three companies accounted for 55% of the market. However, that is only 5% of the total Chinese car market share, which shows that the market is still very young.

For now, Beijing still needs Tesla to boost the electric car market, but Tesla needs to be very cautious,” Le said. “If a domestic electric vehicle company ascends the ladder, the situation will be very different from Tesla.”

Last year, Tesla led the electric vehicle market in terms of sales. But this year, they were beaten by the Hongguang Mini, produced by the SAIC-GM-Wuling Automobile joint venture.

That means Tesla may have to learn to be more responsive to Chinese consumers. The company is known for its “growth at all costs” culture in Silicon Valley. In the US, that has led to complaints about rushed sales and underperforming service centers, and concerns about quality issues.

In 2020, JD Power found that Tesla owners had more problems with their cars than any other brand it studied. Tesla has to find a way to fix those problems in China.

“Be very careful”

“Under Xi’s economic strategy, foreign companies will have pretty good opportunities, but they have to,” said James McGregor, president of mainland China at government relations firm Apco Worldwide. knowing that the ultimate plan is that all advanced technology must be Chinese. I hope that Elon goes in there with sanity.”

In addition, domestic rivals are competing very strongly, with beautiful models and more sophisticated technology. The Model 3 series has had to reduce prices many times in China and exported to Europe, proving that the domestic market has not fully absorbed it.

Foreign companies have long understood that it is impossible to make money in China without formal cooperation with the government. Experts in the Chinese car industry, who have watched companies like Volkswagen and Toyota struggle for decades to achieve what Musk has in just a few years, are impressed with how deftly he continues to close to this market.

Even so, their praise also comes with warnings. Bill Russo, a former Chrysler executive and now the CEO of Automobility, a Shanghai-based consultant, says Elon has done a great job. “But Tesla got this because Tesla benefits China,” he said.