Tesla in China – It's Just a Question of 'When'

One day the Tesla experience in China will be a business school case study, though not in a good way.

Elon Musk thinks he has a special relationship with powerful Chinese officials. There is evidence, he says. He cites Tesla as the first foreign automaker not required by the Chinese government to take on a local partner.

However, the Chinese communists are highly skilled at playing world-renowned elite to their tune. And this "special relationship" reels them in every time.

This has nothing to do with the global slowdown in electric vehicle sales.

China's Foreign Business 'Utility Timetable'

In Musk and Tesla's case, the "takeover" was scheduled when Tesla started sniffing around the idea of locating in China. The clock then started ticking on what a friend with decades of experience in China calls the Chinese Communist Party's (CCP's) "utility timetable." 

The history of foreign ventures in the People's Republic of China (PRC) goes like this: 

1. Flourish with unlimited local support. 
2. Build a market. 
3. Become the operating model for local providers to copy.
4. A local company (and its stakeholders) build up proficiency at some level of sustainability, sometimes by poaching key employees and intellectual property (IP). 
5. Foreign company starts coming under pressure, with the goal of driving it out of the market or forcing it to sell its assets to the local company.
6. Local company takes over the market with second-rate products. 
7. Foreign company exits China.

A foreign company lasts as long in China as it provides utility to the party.  

When the party perceives no more utility to be gained, the hammer comes down.  

By the time Tesla went into China this had happened so many times before it should have been obvious. Now, the CCP's  "utility timetable " for Tesla seems to be accelerating. 

Reeling In Tesla

Part of the timetable - a key inevitable telltale sign the end is coming - is the foreign company is pressured to put its China operations under the control of a Chinese citizen. This citizen is also subject to the country's national security laws, including the 2017 National Intelligence Law. That law requires Chinese citizens and companies to support PRC intelligence operations.

Tesla recently announced that Tom Zhu will be taking charge. He is an Austin-based senior vice president who previously worked for the company in China.

Zhu, born and raised in China, currently holds a New Zealand passport. However, to the CCP, a Chinese holding a foreign passport has no meaning. It is regarded simply as a "flag of convenience" over a Chinese passport, allowing easier navigation around the world. Especially to destinations, colleges, and jobs in countries pushing back against the PRC.

What's next?

Tom Zhu migrates over the next months from his current job to running the complete Tesla operation in China. Zhu and the China operation, characterized in company powerpoints and annual reports by direct, solid lines of reporting to Elon Musk, will become shredded dotted lines. Meanwhile, lines of reporting to the Chinese Communist Party will become larger font solid lines.

After That?

Musk may keep some utility. In the case of large US multinationals that have been in China for decades now (automotive for one) their original utility to the party was used up years ago. But these companies now provide a new utility: de facto lobbying in America. And Washington DC in particular, on behalf of the CCP. As lobbyists, they extol the virtues of China in general. 

Completely coincidentally, in a "Mussolini makes the trains run on time" update, one Musk tweet from earlier in the year reads: "China has incredible trains and infrastructure in general." 

Eventually, though, the likelihood is that the CCP will "settle" with Musk on a buyout valuation of Tesla assets in China.  

The 'Art of the Deal'

Two years later Chinese-made Teslas will clog China's roads. Meanwhile, maps showing where Musk-built vehicles are sold and operating around the world - do not include China. That space is blank. Something similar has gone on with Big Macs,  as McDonald's previously got the same treatment Elon Musk is now getting.

The CCP's "art of the deal" elegant feature is that the victim can see the end coming months or a few years in advance but cannot do anything about it. Except, perhaps, trying to extend their utility by extolling the virtue of Chinese trains, hoping to delay the inevitable.  

The "art" in the deal, from a CCP perspective, is the victim has all this time to twist in anguish while waiting for the inevitable end to come.

Shareholder lawsuit, anyone?

RELATED:

• Mitsubishi Motors Exits China Production as More Companies Review Risks
• Shocking Yet Normal? China's 2023 GDP Growth Is -4.9% or -9.5%
• Dragon Balls and Dinosaurs at Elysée Palace: Japan and China's Astonishing Gifts to Emmanuel Macron
  
  

Author: Grant Newsham
Grant Newsham is a retired US Marine officer and former US diplomat. He is the author of the book "When China Attacks: A Warning To America."