Hello viewers, welcome to “Qin Peng Observation”. Today is April 29th in Eastern Time, and April 30th in Beijing, Hong Kong, and Taipei Time.
Today’s focus: Tesla’s Full Self-Driving (FSD) suddenly receives preliminary approval in China. What price did Elon Musk really pay for this? Will he fall into Beijing’s honey trap?
In the midst of back-and-forth actions by the Chinese authorities towards Tesla, what calculations lie behind Xi Jinping’s sudden enthusiasm?
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Over the weekend, Tesla’s CEO Elon Musk stirred up a storm by visiting Beijing, meeting with Chinese Premier Li Keqiang, and immediately causing a surge in Tesla stock on the US stock market. The stock price skyrocketed from a recent low of $138.8 per share to a high of $198.87 per share, representing a 40% increase.
According to reports from media outlets such as The Wall Street Journal, during Musk’s 24-hour visit to Beijing, Chinese officials informed Tesla that they had preliminarily approved the implementation of FSD, or Full Self-Driving technology in China.
Several media outlets also reported that Tesla is collaborating with Chinese search giant Baidu to deploy mapping and navigation systems in China. According to sources, under the agreement, Baidu will allow Tesla to use its lane-level navigation system. In China, for an intelligent driving system to operate on roads, foreign companies need to collaborate with over a dozen Chinese companies possessing mapping permits.
In essence, with the mapping permit, Tesla can legally use fully autonomous driving systems on Chinese roads, allowing its fleet to collect data on driving environments such as road layouts, traffic signs, and nearby buildings.
The unexpected turn of events far exceeded the expectations of outsiders. But why did this happen? Let’s delve into the calculations of the Chinese authorities later. Firstly, let’s discuss the significant impact this has on Elon Musk.
Over the past few weeks, Elon Musk’s wealth creation myth has been subverted. In the first quarter, Tesla’s revenue and net profit both declined, with global car deliveries significantly lower than Wall Street expectations. Musk had to announce a global 10% workforce reduction, causing the company’s market value to plummet and key executives to resign. Despite Musk’s efforts to dispel rumors, doubts about Tesla’s future strategy and product roadmap persist, severely damaging investor confidence.
During the same period, Chinese competitors eyed Tesla’s market share in China, the largest overseas market next to the US. Companies like BYD and Xiaomi rapidly ascended, creating immense pressure on Tesla.
Now, with the approval of autonomous driving, Musk sees a glimmer of hope in turning the tide. Official and unofficial sources indicate that Tesla has lifted previous restrictions prohibiting entry into sensitive entities like local governments in China.
This is a major development because, just last Friday, Tesla’s VP for international relations in China, Tao Tao, commented on a social media account affiliated with the People’s Daily, affirming that autonomous driving technology will become a new growth engine for the electric vehicle industry.
In April, Musk also mentioned that he plans to launch Robotaxi, a robot taxi service, on August 8 this year. The cost of driving a mile in a Robotaxi is projected to be as low as $0.18, over 10 times cheaper than US-based ride-hailing companies like Uber. With a projected $2 trillion market size by 2030, Tesla commanding a 20% market share, and 25% commission, Tesla’s future revenue could reach $100 billion.
This essentially revitalizes Tesla, given their current market value of over $500 billion.
The technology underpinning Tesla’s Robotaxi service is the FSD technology. Approval in China not only enhances Tesla’s technological advancement but also provides access to unique scenarios necessary for training autonomous driving algorithms in China’s complex traffic conditions, which are richer in pedestrian and bicycle presence than many other markets.
From a revenue and competitive standpoint, adding FSD functionality in China offers significant advantages for Tesla, allowing them to surpass local competitors. Prior to this, several Chinese companies had received approval for similar functions, leaving Tesla in a disadvantageous position.
Simultaneously, this move is expected to substantially increase Tesla’s revenue. With 2.2 million Tesla vehicles in the North American market, where 400,000 have FSD capabilities (usage rate around 20%), priced at $99 per month or $8,000 for the full package, if 20% of China’s 1.7 million Tesla users use autonomous driving at half the price of the North American market, it could generate total revenue of $10 billion.
In conclusion, obtaining approval for autonomous driving is a windfall for Musk in terms of long-term strategic planning, industry competitiveness, and corporate earnings.
However, challenges lie ahead for Musk. What will it cost him?
Musk’s current demands include the approval of FSD and permission for Tesla to export data stored in China to the US for training purposes. It remains uncertain whether the Chinese authorities will approve the latter. It is also challenging for Musk to convince US authorities to allow advanced AI equipment to be taken to China if training takes place there, presenting a dilemma for Tesla.
So, while the windfall is significant, there are uncertainties and potential trade-offs Musk might have to make in the future.
Many overseas Chinese netizens express concerns about potential risks Musk might face, such as acquisitions, political alignment, intellectual property theft by the Chinese authorities, coerced concessions to China, among others.
For China, acquiring Tesla’s technology and other assets is beneficial, as Musk possesses cutting-edge technology like the Starlink network, super-heavy lift rockets, spacecraft technology, and more.
However, China’s current objective doesn’t solely revolve around technology acquisition. Xi Jinping faces various pressing issues like strained US-China relations, the potential for further sanctions due to support for Russia, and resistance to China’s surplus capacity, particularly in industries like electric vehicles aggressively promoted by Xi.
In this context, for the Chinese authorities, granting Tesla permission serves multiple purposes:
1. Demonstrating openness to foreign investment to attract more capital;
2. Enticing multinational companies like Tesla to share core technologies and valuable data in exchange for access to the Chinese market;
3. Using Tesla’s preferential treatment to retaliate against the ongoing trade wars with the US and Europe.
Through the mouthpiece media account “Niudanqin,” these intentions have been made apparent. Premier Li stated, “The deep economic integration between China and the US creates mutual benefits. Tesla’s development in China serves as a successful example of Sino-US economic cooperation.” This could be interpreted as a plea to halt trade disputes and treat China as an equal partner. Regarding foreign enterprises, Li emphasized, “Foreign companies are indispensable contributors and participants in China’s development, and China’s vast market remains open to them.” This statement aims to downplay China’s history of favoring domestic companies over foreign ones and intellectual property theft. Recently, China had been replacing Intel, AMD, Apple equipment and systems in government and state-owned enterprises.
The fourth objective is a longer-term strategy to enhance China’s new energy vehicle industry. The “Niudanqin” account mentioned the unlimited prospects of cooperation between China and Tesla, coinciding with Li Keqiang’s visit to the ongoing Beijing Auto Show, advocating for the development of smart networked new energy vehicles.
This move signifies a retreat from the previous aggression towards Tesla, indicating an effort to utilize Tesla’s expertise to boost China’s capabilities in smart networking and related technologies. China believes this strategic shift will position them at the forefront of global electric vehicle competition, paving the way for a competitive edge in artificial intelligence and energy storage.
To this end, China has carefully coordinated with supporting Chinese companies as Tesla’s companions, including BYD, Xpeng, Lotus, Hozon New Energy, and NIO, with potential future partners like Huawei and Xiaomi.
Tesla’s presence in China has indeed been profitable for the country over the past decade. The Shanghai Gigafactory has achieved over 95% localization of parts, with over 400 local Tier 1 suppliers signed with Tesla, of which over 60 have entered Tesla’s global supply chain. Tesla’s open-source policy has fostered the growth of these suppliers. These suppliers have also expanded operations to Mexico, where China manufactures and exports auto parts to the US, reaching $1.1 billion in 2023, a 15% year-on-year growth. China-derived parts assembled in Mexico qualify for a maximum $7,500 US consumer tax deduction under the 2022 Consumer Price Relief Act.
Canadian and American industry organizations warn that China’s increased investment in Mexico to circumvent US trade policies is worrisome.
By empowering these companies, Tesla indirectly nurtured formidable global competitors. Recently, BYD surpassed Tesla to become the world’s best-selling electric vehicle manufacturer, attributed in part to their lineup of affordable vehicles. NIO and CATL, key players in the electric vehicle supply chain, have been propped up directly or indirectly by Tesla, surpassing Tesla in certain aspects.
Thus, the upcoming moves by the Chinese leadership represent a significant strategic play.
However, despite these efforts, China’s economic and political challenges remain profound. The ongoing international isolation is due to the threat posed by China in sectors like new energy vehicles and mass dumping strategies. Additionally, China’s ambitious foreign policy endeavors, involvement in South China Sea and Taiwan Strait disputes, support for Russia in Ukraine, and alignment with rogue states like Hamas and Iran, have led to heightened restrictions on China’s advanced technologies and trade by Western nations. These complex dynamics indicate that a mere industry partnership with Tesla will not absolve China from its decline and collapse.
Global events suggest that China is facing unprecedented challenges and inevitable decline, given its expansionist policies and international confrontations. China seeks to secure favorable conditions and revitalization but must acknowledge that its destiny depends on more than industrial developments.
This brings us to the end of today’s analysis. If you enjoy the program, please subscribe to my new channels in the comments section. Let’s focus on the historic turning points in 2024 together!
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