The demand for electric vehicles continues to rise around the world. China, in particular, has been motivated to eliminate care emissions for some time.
Tesla has been allowed to manufacture and sell electric vehicles in China, somehow sidestepping some considerable restrictions. So what did Elon Musk and China agree on to make this happen?
Get ready to hear about the deal, problems, and even some banning surrounding the relationship between Tesla and China.
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Why Tesla Wanted a Deal
China has been at the top of the electric vehicle market for the past seven years. It makes sense that Tesla would want to be part of it.
The problem with an American business wanting to break into the Chinese market is that it’s usually not financially feasible.
China imposes hefty tariffs on imports. This means that when Tesla imports a car to China, the price is almost double what it would cost in the U.S.
It became clear that Tesla would need to find a way around the stiff regulations and fees if it were to break into the Chinese electric vehicle market.
How Tesla Entered the Chinese Market
Tesla has been working to reach an agreement to open a factory in China for several years. Finally, in 2017, the company announced that an agreement had been reached between the Shanghai municipal government and the car manufacturer.
Elon Musk found a way into the Chinese electric vehicle market without being bound by many of the restrictions that had kept other businesses away for years.
Of course, Tesla had already been sourcing materials from China (like Lithium for the batteries).
Perks for All
Here’s what made the deal happen:
- China is leading the world in nurturing the market for electric vehicles. Supply and demand worked in Tesla’s favor here.
- Foreign businesses must work with local manufacturers, except the Tesla, aka Gigafactory, in Shanghai.
- Tesla is wholly owned and operated as a completely independent business. Foreign ownership remains in place for the factory in Shanghai.
- China promised to fast-track permits to get the factory up and running as quickly as possible. In return, Tesla offered jobs and contracts to local contractors and workers.
- Tesla committed to a 50-year lease on their factory’s land.
- China’s push for electric vehicles should benefit from the marketing efforts of Tesla, helping to improve China’s declining demand for vehicles.
- Tesla could bring a finely tuned production line of reliable electric vehicles to the Chinese market. Top electric vehicle manufacturers in China are not as streamlined as Tesla. They can’t keep up with the research, development, investment, and time that Tesla has already mastered.
The Tesla Difference in China
Since there are already some big players in the electric vehicle market in China, Tesla needed to stand out. Musk claims there’s no need to market when the manufacturer can elevate the customer experience.
The website for Tesla in China allows a customer to do everything necessary to be able to buy their car. For a location plagued with COVID-19 problems, this sales model is perfect.
Customers can also take advantage of a referral plan. Instead of spending money on advertising, people share their Tesla experiences with others. The power of word of mouth for the manufacturer appears to be effective in China. As a result, their vehicle sales continue to grow.
Tesla also installed their own charging stations, allowing them control of as much of their product as possible in a convenient resource for Tesla drivers. This helped to alleviate some consumers’ concerns about the lack of charging stations for Tesla cars.
Elon Musk also has some pretty significant name recognition in China, both positive and negative.
No matter a person’s opinion of him, Elon Musk is recognized and known for his brand.
Has Tesla Been Successful in China?
Tesla has generally been successful through their agreement and manufacturing with the Chinese government. Sales have been impressive, with some models as bestsellers in China this year.
Even throughout the lock downs and restrictions of the global pandemic, Tesla was allowed to move forward with their production operations. Chinese leaders provided workers with personal protective equipment and transportation to keep the plant safe while continuing to run despite COVID-19.
This preferential treatment highlights the importance of the manufacturer’s role in the electric vehicle market in China.
Tesla’s Model 3 continues to be turned out in high volume, as well as the newer Model Y.
China’s supply and demand chain pushes eclectic vehicle manufacturers to be as competitive as possible. Tesla’s ingenuity and innovation allow them to meet that challenge.
Tesla Faces Challenges in China
Cars Banned for Alleged Spying
Even though Tesla has seen success in China, it hasn’t been smooth sailing. The manufacturer has seen Tesla cars banned from certain areas due to suspected spying.
In 2021, government officials in China expressed some serious concerns that there could be spying activity done through Tesla vehicles.
The Chinese military claimed that anyone who drove a Tesla would no longer be able to park their car on both military bases and housing communities.
Here’s how Tesla’s Elon Musk responded:
- Musk made a public statement that assured Tesla owners that their car’s camera is not spying on anyone when it collects data.
- When Musk’s statement didn’t alleviate concerns, he announced that all the data collected in the vehicles would be stored locally in China.
- Shortly after the promise to store data in China, Musk announced he would build a new center to store data within the country.
Although Musk tried to do some damage control, Teslas continue to be banned in the district of Beidaihe in 2022.
While the reason the vehicles are banned wasn’t specified, many speculate that Beidaihe is a common location for Chinese leaders to hold meetings in the warmer seasons.
More than 80,000 Teslas have been recalled according to the Chinese market regulator in November of 2022.
This recall is to fix software issues affecting the cars’ battery operating system.
Past recalls have been issued to repair faulty seat belts and possible defects in the car’s semiconductor that could make the car more likely to be involved in a crash.
A driver in China claimed that his brakes would not respond for over a mile before the car ended up crashing. The vehicle was said to have reached speeds of 123 mph.
Two people were killed as a result of this accident.
Tesla offered a statement that disputed the driver’s story. They claim that the vehicle’s brake lights never flashed on and that the car’s throttle was pushed down for extended periods. This data could mean that the brake was not used throughout the incident.
There hasn’t been a comment from authorities about the incident at this time.
When China brought Tesla into town, it wasn’t because they would be the only electric vehicle manufacturer around. Instead, Tesla brought some healthy competition to a market that was important to the country.
Tesla needs to outperform several Chinese electric vehicle manufacturers to be at the top of the food chain. These companies include GAC, SGMW, Chery, and BYD.
A competitive market can be good, especially regarding the cost of an electric vehicle. With all of the resources and breaks, Tesla has enjoyed from its deal with China, it’s a good bet they’ll remain a top seller for some time.
Tesla Trailblazing in China
A lot has been accomplished in business and politics in a short time to allow these two giants to work together.
Despite challenges like COVID-19 and problems with vehicle function, both continue to thrive.
If nothing else, this situation shows that some hard work, compromise, and commitment can make a big difference.
Not only did this venture bring jobs to the area, but residents can also enjoy competitive pricing while taking steps to reduce air pollution and gasses.