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Elon Musk Makes Visit to Post-Reopening China

The Lede: Elon Musk is making his first visit to China since the start of the country’s hard COVID-19 restrictions more than three years ago. The heads of some of the biggest U.S. companies are also visiting China this week.

What We Know:

  • Tesla CEO Elon Musk is making his first trip to China in over three years amid a diplomatic low-point for U.S.-China bilateral relations. He met first with Chinese foreign minister Qin Gang, noting that the interests of the two countries are intertwined and that Tesla opposes ‘de-coupling.’ He met with Chinese industry and information technology minister Jin Zhuanglong on his second day to discuss electric vehicles (EVs).
  • Musk also visited the Ministry of Commerce, which is responsible for the approval of Tesla’s Gigafactory in Shanghai. The company is reportedly working on a new version of the Model 3 sedan at the Shanghai factory along with the construction of a new battery factory. His agenda also includes a possible meeting with Premier Li Quang to discuss autonomous driving technologies. Li was Shanghai’s party secretary when he convinced Tesla to build the Gigafactory there.
  • On the business front, Musk also met with Robin Zeng, founder of Contemporary Amperex Technology, which specializes in manufacturing and management systems for EV lithium-ion batteries. They likely discussed collaborations on the new factory in Shanghai as well as a future U.S. production facility.
  • The visit also coincides with China sending its first civilian astronaut into orbit with the launch of the Shenzhou-16 mission for the country’s fifth manned mission to its Tiangong space station.

The Background: Tesla engaged in a price war for EVs in the Chinese market last October by lowering prices for the Model 3 and Model Y cars. The company’s sales account for 9.6% of China’s new energy vehicle market. Washington has expressed concern about Musk’s business activities in China, especially as it concerns classified information held by SpaceX. The ongoing U.S.-China tensions, fears of an escalation in Taiwan, and increased regulatory pressures on foreign businesses in China have led businesses to look elsewhere to reduce risks outside of China.

Likely Outcomes:

  • Elon Musk and the leaders of other firms will continue to seek cooperation and opportunities in China as far as the local regulations and U.S. trade policies permit. Their business interests serve as a balancing weight against the political clashes between Washington and Beijing. All parties involved want to continue to reap the benefits of keeping business going but want to mitigate the consequences of the superpower rivalry.
  • Visits from business leaders and the recent meetings between the Chinese commerce minister and U.S. officials in Washington D.C. and Detroit signal a desire to work toward more stable trade and commerce in the foreseeable future. However, geopolitical tensions and incidents such as the encounter between a Chinese jet and a U.S. military plane over the South China Sea could seriously derail any efforts to mend bilateral communications or economic activities.
  • China has been rapidly advancing its capabilities in space, which could be an area of cooperation for Musk’s space business or an area of potential concern from a security perspective. Scientific collaborations in space could be an avenue for strengthening bilateral ties or another source of tension. The role of private businesses like SpaceX in this area remains to be seen.

Quotables:

“It signals how important the China market is to defend and how important it is to your global system, you need the scale of China working for you…but in order to sustain that, you need to make sure that you maintain your relevance here.” - Bill Russo, founder and CEO of Automobility

“The recent crackdowns on information providers has worsened a lot of this uncertainty. Companies are increasingly unsure of where the government’s ‘red lines’ are, and what steps they need to take to avoid falling foul of regulators…This doesn’t mean that the conversations around ‘de-risking’ or ‘de-coupling’ aren’t happening, particularly at the government level. Instead, it shows how tricky these policy objectives are in practice.” - Nick Marro, global trade lead at the Economist Intelligence Unit

“The China space program is far more advanced than most people realize.” - Elon Musk, CEO of Tesla and SpaceX

Good Reads:

From Elon Musk to Jamie Dimon, CEOs flock to China as risks to trade and investment rise (CNN)

Elon Musk’s visit underscores China’s importance to global EV market, analysts say (CNBC)

Elon Musk Visits China Amid Rising Geopolitical Tensions (Forbes)Elon Musk Gives the West a Major Fact About China (TheStreet)