Elon Musk’s tacit support for President Donald Trump’s aggressive posturing against China’s trade policies stems from the brutal rules Tesla must comply with to do business in the former communist country.
Tesla and other manufacturers must engage in a joint venture with a Chinese company to do business in the country or fork over steep tariffs to protect their secrets. Most companies take the former method to avoid tariffs, but Tesla has done everything it can to forge a different deal.
Musk accepted a preliminary deal in October 2017 allowing the company to build its own manufacturing facility within a free trade zone. Tesla would still be subject to China’s nearly 25 percent tariff on imports — it’s a high rate compared to U.S.’ 2.5 percent and Europe’s 9.8 percent. Musk, who owns 19 percent of Tesla, wants to protect the company’s technology at all costs.
“Tesla has invested a fortune in developing its technology, and the last thing it wants is a joint Chinese partner getting access to that technology … and then stealing it and using it on their own,” Fordham University International Trade Law Professor Matt Gold told The Wall Street Journal Wednesday.
Tesla is itching to jump full bore into expanding its enterprise beyond California. China has the world’s largest electric vehicle market. Chinese automakers produced nearly 680,000 all-electric cars, buses and trucks in 2017 — more than the rest of the world combined. Their dominance in the market is due to China’s generous subsidies to green energy companies.
“Current rules make things very difficult. It’s like competing in an Olympic race wearing lead shoes,” Musk wrote in a March 8 tweet to Trump, who announced in March a plan to place nearly $60 billion worth of tariffs on China. The U.S. is having “very large negotiations” with China on trade, the president said during a March 22 press conference.
The Office of the U.S. Trade Representative released a list Tuesday of 1,300 Chinese products subject to punitive tariffs of roughly 25 percent. The proposed trade penalties are expected to come at about $50 billion and target technology that might advance Beijing’s industrial development goals.
U.S Trade Representative Robert Lighthizer launched an important investigation of China under Section 301 of the Trade Act of 1974 in August 2017 looking “into Chinese laws, policies and practices which may be harming American intellectual property rights, innovation or technology development.”
There is no guarantee Musk will survive in China, even if Trump does manage to cajole Chinese President Xi Jinping. Tesla is heavily dependent on subsidies for its existence. The subsidy train could end sooner rather than later though, as China is already struggling to pay out billions of yuan in subsidies to clean energy companies.
The total shortfall by 2020 will be $30.2 billion — a dramatic increase from $7.5 billion in 2017 — National Development and Reform Commission’s Energy Research Institute Director Dongming Ren said at an industry conference earlier this year. Electric vehicle sales plummet wherever subsidies and tax credits for ownership are nixed.
Tesla cars registered in Hong Kong, for instance, tumbled from nearly 3,000 in the month of March to zero in April 2017 after the government cut a tax break for electric cars, according to an April 2017 report from The Wall Street Journal.
Registration numbers are the best data sets available to approximate actual cars sold in the country. Neither Hong Kong nor Tesla publish real numbers of Tesla cars sold in the country.