Elon Musk’s love for China may be over as regulators go after Tesla

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The electric carmaker has been called on by five Chinese regulatory authorities to answer questions about the quality of its Shanghai-made Model 3 cars, according to a statement released Monday by the State Administration for Market Regulation (SAMR). It said regulators were concerned various problems with the cars, including “abnormal acceleration” and “battery fires”.

The meeting is troubling to Tesla. Thanks to Musk’s courting of officials, Tesla had managed to avoid cumbersome restrictions placed on global rivals seeking to do business in China. The company opened one of its massive auto factories in Shanghai in 2019 with great fanfare, and the country now accounts for a fifth of its revenues.

But in recent weeks, Tesla has been heavily criticized in China for a series of problems with its cars, culminating in Monday’s announcement.

“[We will] Think deeply about the company’s operational shortcomings and fully strengthen self-inspection, “Tesla said in a statement posted on China’s social media website Weibo in response to SAMR’s comments.

“We will strictly adhere to Chinese laws and regulations and always respect consumer rights,” said the automaker, adding that it “will better contribute to the healthy development of China’s new energy vehicle market.”

It is not clear whether regulators plan to punish Tesla or change the way it operates in the country. But the controversy is a sign of how seriously Beijing is taking its regulation, even among companies it appears to be favoring.

“It’s a slippery slope for Musk,” said Dan Ives, a technology analyst at Wedbush Securities. The CEO “had built strong relationships in the country, but he has to play nicely in the sandbox in China.”

Strong support

Tesla has been in China since 2013, but has built a strong relationship with the Chinese government in recent years.

When the automaker negotiated with the authorities in 2017 the terms for the construction of its Gigafactory in Shanghai, he managed to maintain full control – an unusual arrangement, as his colleagues typically had to work with Chinese companies to set up a local business at that time. (China announced in 2018 that it would relax the automotive sector’s foreign ownership rules by 2022.)

Tesla has started delivery of the Chinese model Y.
Since then, Tesla has enjoyed strong government support. It was the only foreign manufacturer without a local partner to win a major tax break for its cars in 2019. The company also quickly resumed production during the coronavirus pandemic, thanks in part to support from the local government.
Musk has also won over authorities as well as Chinese citizens, and is a welcome guest in the country. He danced onstage during the debut of the Shanghai-made Model 3 early last year, which went viral on Weibo. Prime Minister Li Keqiang even said he would like to give Musk a “Chinese green card” after the American entrepreneur said he “loves China very much”.
The rise of Tesla in China has paid off. The company sold $ 6.66 billion worth of cars in China last year, accounting for 21% of its sales, according to a recent business filing. That’s more than double what it sold in 2019, when it hadn’t started making cars there.

A sour feeling

But in In recent months, perception of Tesla in China has started to turn sour. Last November, the Xinhua state news agency attacked the company after one of its lawyers wrote to US regulators about a recall in China, blaming “driver abuse”.
“Tesla shifted the money to the driving and regulatory burden of Chinese users,” Xinhua’s Nan Chen wrote in an opinion piece published in Liaowang, a news agency magazine. “This kind of ‘Tesla-like arrogance’ cannot be tolerated.”
Criticism escalated last month after a video went viral in China that appeared to show a Tesla employee telling a customer an overload in the state’s power grid a loading accident that damaged the car. A local branch of the power company responsible for the power grid denied it was to blame and told Tesla it should “carefully identify the root cause” of the car’s problems.
Tesla wrote on his Weibo account last week that the video had been edited and that the employee had put forward “several possible factors” for the car’s problems. Still, the company apologized.

“We are very sorry about the misunderstanding that has caused netizens and the problems that have been caused to the power authorities,” the company said.

However, the state media piled up on the power grid after the incident. Earlier this month, Xinhua once again accused Tesla of his “arrogant attitude” and accused the company of “paying again.”

The Global Times, a state-owned tabloid, also took charge of the company.

While Tesla is arguably the US company most active in investments in China, the Silicon Valley-born carmaker is far from understanding Chinese consumers, as evidenced by its stance in a series of scattered accident reports, including explosions, drivers losing control and faulty brakes. ”read an article published by the Global Times.

Other Challenges

Regulatory pressure is not Tesla’s only challenge in China to move forward.

According to the China Passenger Car Association, the company was the best-selling brand of electric vehicles in the country last year, with 135,400 Model 3s sold.

But competition is getting fierce. BYD let go of Tesla as China’s top-selling electric car brand last month, trying to contain other automakers such as Nio, Geely and Xpeng.

While China has welcomed Tesla so far, experts point out that Beijing ultimately has its own ambitions to be at the forefront of technology and other fields. In other words, once homegrown companies are competitive, the country doesn’t need much more foreign companies.

– CNN’s Beijing office contributed to this report.

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