China is Helping Tesla Because They Know Exactly What They Want from Tesla


“The Shanghai government said it would give full support to the construction of the plant and improve the business environment for foreign-owned enterprises”, wrote Xinhua, the official state-run press agency of the People’s Republic of China.

South China Morning Post ran a headline that reads “China’s ‘Firefighter’ Wang Qishan powers up US business outreach in talks with Tesla chief Elon Musk. President’s right-hand man invites entrepreneur to the country’s political heart as more American tariffs loom”

It is not unusual to see CEO’s of top companies meeting with top leaders of the country when they visit. But China is known for its policy to force overseas companies into partnership with local entities. So rolling out a red carpet for Tesla, a company that has steadfastly refused to cede control of operations in China is a bit unusual.

For a long time, China required overseas companies to find a local partner to work with and imposed heavy fines when companies resorted to importing their products. China announced early this year that it will ease ownership restrictions.

According to National Development and Reform Commission (NDRC), “China will scrap (ownership) limits on companies making fully electric and plug-in hybrid vehicles in 2018, commercial vehicle makers in 2020 and lift restrictions on the wider passenger vehicle market by 2022.”

Tesla is not the only company that builds fully electric and plug-in hybrid vehicles, nearly all manufacturers around the world have started or announced their plans to build EVs. But a statement by Shanghai Commission of Economy and Information Technology Director Hunag Qu made it clear that it was indeed a red carpet roll out for Tesla in China.

Director Hunag Qu told reporters “The next step is for the city government to do the support work to allow the project to go into operation as quickly as possible,”. He added “In line with state plans, we will speed up the cancellation of foreign ownership restrictions in the car manufacturing sector.”

Shanghai Party Secretary Li Qiang meets Elon Musk, chairman and CEO of Tesla Source: SHINE

Shanghai says that its ready to speed up local clearances in order to help Tesla start production in the Country. Shanghai’s Communist Party chief Li Qiang, who is also one of the 25 Politburo members of the all powerful Communist Party of China told reporters that he expects Tesla’s China operations to grow further after its entry into Shanghai.

The Shanghai municipal government welcomed Tesla’s move to invest in a new factory in the city but also asked the company to invest in research and development. The local government suggested that it would help Tesla with some of the capital costs saying it would “fully support the construction of the Tesla factory”.

My 2 Cents:

China wants foreign companies to invest in the country. But it wants them to do so in its own terms, not the other way around. Nearly every major overseas car manufacturer operating in the country has a local partner. Tesla will be the first overseas auto manufacturer to have complete control over its operations in the country.

On top of relaxing its policy to help Tesla, China is saying that its ready to “help with some of the capital costs”. China spends a ton of money on infrastructure and it’s not a big deal for them to help Tesla by giving them a massive tax break, a lavish subsidy or even low interest debt, but it is a big deal that they are ready to do so for a US company that kept dragging its feet on manufacturing locally.

This is where the statement by Shanghai government, that “it welcomed Tesla’s move to invest not only in a new factory in the city, a center of the Chinese auto industry, but in research and development, as well.” takes significance.

Efforts are already under way to accelerate Tesla’s research and development in China. Tesla is planning to fasten the construction of its Beijing sci-tech innovation center.

Ren Yuxiang, Tesla’s head for Asia Pacific, told Xinhua “With the talent base in Beijing, we plan to conduct further cooperation with the municipal government, research institutes and colleges and universities,”.

Tesla is expanding its innovation center in Beijing and plans to work with local government, research institute and universities. I guess this explains it all and the simultaneous announcements, factory on the one side and expanding R&D work on the other cannot be a mere coincidence. Not when the Shanghai government explicitly notes that it expects Tesla to invest in R&D.

China wants Tesla to strengthen innovation in the country. And they are ready to help Tesla in return.