Tesla Says US-China Relations Won’t Impact Its Success in China, But Signs Point to Strain

Mar 07 2023 |
Photo by GeorgeMorga via Flickr

Tesla CEO Elon Musk has a long history of pandering to the Chinese Communist Party, but Tesla may be moving to reduce its exposure to China’s whims.

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U.S.-China conflicts seem to make headlines at least once a week, but Tom Zhu, Tesla’s vice president of global products and manufacturing, isn’t worried. Nope, nothing to see here. All is well.

When asked if these tensions threaten Tesla’s ambitions in China during Tesla Investor Day this past Wednesday, Zhu said that Tesla has a stable hold in the country.

“We create a lot of jobs in the local community and for our suppliers, and we contribute a lot to the local economy,” said Zhu, the South China Morning Post reported. “I think as long as we’re needed in this country, I don’t see there is much of a risk of that.”

But there’s a whole bevy of reasons Tesla should be very nervous about their exposure to China.  

From a simple business perspective, Tesla’s shot at capturing the Chinese market isn’t great. The company faces fierce competition from China’s native brands — 80% of electric vehicles sold in China were made by Chinese companies in 2022, having benefited from a largess of government subsidies, while Tesla claimed only 15% of sales, according to The Wall Street Journal. But, most disturbingly, there are serious ethical quandaries that stem from manufacturing in China that may have an impact on Tesla’s business in the very near future, if they haven’t already.

A recent report produced by Sheffield Hallam University’s Helena Kennedy Centre for International Justice traced the international auto industry’s convoluted supply chains and found that “practically every major traditional automotive and electric vehicle manufacturer has significant exposure to forced labor in the Uyghur Region.” The report specifically cites Tesla’s supply chain connections to Xinjiang, the epicenter of the Chinese Communist Party’s (CCP) repression of the Uyghur ethnic group.

Though U.S. law prohibits the import of goods made by forced labor in Xinjiang, Chinese manufacturers have long dominated the world’s auto parts and global auto brands remain dependent on them. Auto companies would surely prefer to remain ignorant of their complicity in forced labor through their suppliers, but as Campaign for Uyghurs Founder and Executive Director Rushan Abbas said on The Manufacturing Report in 2020, doing business as normal in China is impossible.

One auto company has recently been confronted with this truth. Volkswagen’s car plant in Xinjiang, which at one time produced 20,000 cars annually, has generated a firestorm of criticism from human rights advocates. Last week the Wall Street Journal reported that the factory no longer manufactures any vehicles though the company continues to deny any human rights violations.

Tesla CEO Elon Musk has also personally felt the maelstrom of unease between the U.S. and China.

Though Musk is unquestionably a fan of controversy, he likely wasn’t looking for a rebuke from the CCP when he courted it by responding to a tweet perpetuating a COVID-19 conspiracy theory, prompting Chinese state-run media outlet the Global Times to publicly chastise the CEO.

Musk has a lot at stake if his relationship with the CCP sours: One of Tesla’s biggest factories is in Shanghai (the construction of which was partially funded by loans that Chinese government officials helped Tesla secure), and China reportedly accounts for 40 percent of Tesla sales. Musk’s past actions suggest he’s very aware of his exposure.

In 2021 Tesla announced plans to open a new showroom in Xinjiang — the site of the Chinese government’s repression of Uyghurs and other ethnic minorities — just eight days after President Biden signed the Uyghur Forced Labor Prevention Act into law. The historic legislation, passed through the Senate with a unanimous vote and through the House with a 428-1 vote, bans the import of goods made wholly or in part in Xinjiang. Nonetheless, Tesla made a public display of its support of doing business in the region.

Last year, Musk’s business ties to China came under scrutiny as well. Republican lawmakers expressed concern that the CEO’s dealings with the CCP could create national security risks, especially in the arena of SpaceX, Musk’s spacecraft and satellite communications venture.

“I am a fan of Elon Musk and SpaceX, but anyone would be concerned if there are financial entanglements with China,” Rep. Chris Stewart (R-Utah) told The Wall Street Journal. “Congress doesn’t have good eyes on this.”

It appears that Musk is aware of the challenges that await Tesla if the company were to increase its manufacturing dependence on China — something that plenty of other companies are considering as well. The company announced plans last week to build a factory in Mexico.