How China Leveraged Tesla to Drive the Growth of Local EV Brands
Typically we cover Chinese brands and trends on our website, yes Tesla isn’t exactly Chinese brand. However, the symbiotic relationship between China and Tesla has made Tesla an important driver in the growth of China’s electric vehicle market.
Unlike other foreign automakers, Tesla got the warmest welcome from the Chinese government. The government even allowed Tesla to remain “single”, no joint ventures and no profit sharing. What makes Tesla so special and not the others? What is the real benefit of Tesla having such a heavy presence in China?
Tesla is “The Neighbor’s Kid”
Chinese students often hear their parents tell them about “the neighbor’s kid”, the poster child who gets better grades and is more successful. They are always compared to the neighbor’s kid, the eternal competitor.
While Tesla did live up to its motto of accelerating the world’s transition towards sustainable energy, Tesla also made electric cars cool. Tesla is the neighbor’s kid, the poster child of the EV industry. The Chinese government has made it loud and clear that it wants to dominate the global EV industry, so keeping the poster child living in the backyard is probably more than ideal for a couple reasons.
1) Tesla Made EVs Desirable
Tesla’s presence changed people’s perception of electric cars. A similar comparison would be Michael Jordan’s effect on basketball in China. Jordan inspired generations of Chinese people to love basketball, and until today basketball, is still the most popular sport in China. Tesla had the same impact on the electric vehicle industry. Prior to Tesla, electric vehicles weren’t popular in China. Tesla changing people’s perception of EVs has helped the Chinese government with its initiative of phasing out gasoline powered cars by 2035. It also created a market for high-end EVs for local brands to tap into.
2) Tesla Brought Attention to Local EV Brands in China
Let’s use the example of Huawei. Huawei CEO Ren Zhengfei once said he thanks Trump for naming Huawei as a competitor in the global 5G race and creating all this controversy. Why? Because now everyone knows Huawei and knows that Huawei’s technology is advanced enough to be considered a competitive threat. No amount of money can buy this kind advertisement and brand awareness.
Similarly, very few people in the west had heard of local Chinese EV brands NIO, Li Auto and XPeng. But now they are known as Tesla’s competitors in China and often compared with Tesla in the media. The more spotlight Tesla gets, the more attention they get too.
3) Technology
The biggest advantage will be technology. Tesla has been and will bring a considerable amount of technology into the Chinese automotive industry. China is betting big on autonomous driving, and Tesla is at the forefront of achieving this goal. Tesla’s presence forces domestic brands to continuously improve their technology and products to be able to compete.
Right now, Tesla and Xpeng are both trying to achieve full autonomous driving; however, they are going very directions. Xpeng is going the more traditional route by using sensors and lidar, and Tesla is trying to achieve this goal by only use cameras and software. There are pros and cons to both methods, sensors and lidars give vehicles more accurate measurement of distance, thus in the crowded Chinese streets it might have an advantage. Yet Tesla’s camera system will provide major savings in production cost since lidars and sensors are not cheap. We have yet to see who will be the winner, but a little healthy competition is always good.
Tesla’s Strong Presence in China Benefits Local Governments and Peripheral Industries
Aside from boosting loval EV brands, Tesla’s presence in China also boosts other industries.
Tesla’s Shanghai Gigafactory was entirely financed by Chinese state-owned banks, and Tesla paid a 50-year lease on the land to the government. Tesla also agreed to pay 2.23 billion RMB around $320 million dollars in tax to the Chinese government annually starting at the end of 2023.
The benefits are not only for the Chinese government, they also extend to the local industries. Tesla made a deal with Chinese battery manufacturer CATL to supply batteries for all Chinese-made Tesla vehicles, some will also be exported to Europe, Australia, and New Zealand. The Gigafactory also adds jobs and requires the purchase of locally made materials and equipment. By 2030 Tesla wants to source 100% of its raw materials and equipment locally. This allows Tesla to further cut production costs and make the Model 3 and Model Y extremely affordable. Opening a factory in China has already dramatically lowered the cost of purchasing a Tesla in China, resulting in a huge bump in sales. In fact, Tesla saw its second highest month of sales in June, after another price drop.
Despite All This, Tesla Will Always Be an Outsider in China
Like any relationship, Tesla and China have their up and downs. For example, the recent Shanghai Auto Show incident where a protester standing on a show car claimed that her Tesla’s brake failure caused an accident nearly killing four family members caused some negativity around the brand. Signs of “No Tesla Allowed” started to appear at some shopping centers and parking lots, Tesla felt the drop in sales almost immediately in April. But we can see that incident quickly passed and sales rebounded in May and June.
The Chinese government also banned Tesla vehicles from entering government properties and military bases, in fear of Tesla’s cameras capturing national security related imagery. And there were several recalls regarding its software.
Despite having Tesla as the motivator in the Chinese EV market, Tesla will always be on pins and needles. China’s EV race is like the Game of Thrones and there are numerous brands out to kick Tesla off the throne.
And quite frankly, Tesla’s continued success in China is purely based on Chinese government’s mood. One can only hope the tensions between China and the United States will gradually deescalate, so we see more collaboration and less competition.
