Why Elon Musk needs China

When Elon Musk first set up the Tesla factory in China, he seemed to have the upper hand.

He gained access to top leaders and drove policy changes that benefited Tesla. He also got workers used to long hours and fewer protections after clashing with US regulators over working conditions at his California factory. The Shanghai factory helped make Tesla the world’s most valuable car company and Mr Musk ultra-rich.

But Tesla is having a hard time now. Mr. Musk has helped create his competition, Chinese EV manufacturers taking market share and becoming a safety concern for the United States and Europe.

In California, where Tesla launched its first car in 2008, the company has taken advantage of an emissions mandate that allows it to sell credits — worth billions of dollars — to automakers that can’t meet pollution targets.

When Musk turned to China, his lobbyists encouraged leaders there to pursue similar policies. Emails and other documents we obtained show they worked through California environmentalists who wanted to clean up China’s air.

Beijing adopted the policy in 2017, which was also promoted by groups not affiliated with Tesla. After Tesla opened its Shanghai factory in 2020, the company earned hundreds of millions of dollars in credits through the policy, according to market analysis firm CRU Group. .

The Shanghai factory has replaced Tesla’s factory in Fremont, California, as the largest and most productive, accounting for more than half of the company’s global deliveries and most of its profits.

As the factory took shape in just under a year, Mr. Musk worked closely with a city official who is now China’s premier, Li Qiang. Under Mr. Li’s watch, state banks offered low-interest Tesla loans, a deal so generous that a senior auto official recalled a government minister balking at it.

China also changed ownership rules to allow Tesla to start without a local partner, a first for a foreign car company in China.

Mr. Musk is cutting production and labor costs in Shanghai and cannot easily extricate himself if he ever wants to. With the billionaire’s wealth tied up in Tesla stock, his personal fortune now depends on what happens in China.

Musk’s dependence on the Shanghai factory could give Beijing leverage over him.

That’s a concern because a second of Mr. Musk’s companies, SpaceX, has sensitive Pentagon contracts and controls much of the world’s satellite Internet through its Starlink network.

Mr Musk has said his companies should not be merged. But he has also praised China’s leaders and sided with China in geopolitical disputes, even as he rails against politicians in the United States.

In an online conversation with two members of Congress in July, he called himself “kind of pro-China.”

Mr Musk, who has insinuated that American workers are lazy, demanded intensity at Tesla’s Fremont factory, sometimes even sleeping on the factory floor himself.

In Shanghai, Mr. Musk was able to escape U.S. regulators and labor organizers.

We spoke to Chinese factory workers who described being asked to work six consecutive 12-hour shifts during the city’s 2022 coronavirus lockdown.

Some slept on the factory floor, as Mr. Musk had done in Fremont. They could choose not to work, but for a pay cut, they said.

When a worker was crushed by machinery last year, a government report citing safety gaps was taken offline.

Chinese leaders wanted a Tesla factory to boost China’s EV sector. That’s exactly what happened.

In Shanghai, Tesla shifted to using locally made batteries and parts, in some cases helping suppliers develop technologies that they then sold to Chinese EV makers. Tesla also trained a generation of talent.

Now Europe and the United States are trying to catch up. French Finance Minister Bruno Le Maire says China has a five- to seven-year lead over Europe.

And Tesla itself is becoming increasingly vulnerable. Its Chinese rival BYD overtook it in global sales late last year. Without trade barriers, Musk warned in January, BYD and others will “virtually destroy most of the world’s other auto companies.”

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