Investment strategist Anthony Sasin said Musk’s visit to China is an attempt to celebrate the country’s importance to the global electric vehicle market and “make sure he’s on the same wavelength as the ruling party.” The country accounts for 50% of Tesla vehicle sales and 20% of the company’s production capacity.
While reporting on Tesla’s earnings in April, Elon Musk called tensions between the US and China “risk” for the automaker’s 2023 financial projections. According to Sasin, the billionaire’s first visit to Beijing in three years can be seen as a political statement in which he demands political stability for business from representatives of both countries.
Photo: Reuters
However, politics is not the only reason holding back the development of Musk’s business. The macro environment has generally been tough in both China (which stopped providing subsidies for the purchase of new electric vehicles) and the US (where interest rates have been rising). Given the financial situation, tech companies have been cutting prices to increase product sales, which has had a negative impact on their revenues.
Tesla cut electric car prices in China in October and January, but raised them again in May. However, the fact that the cost is falling shows how important the Chinese market is for the American automaker, says Bill Russo, founder and CEO of strategy and investment consulting company Automobility.
“It signals how important it is to protect the Chinese market and how important it is to the global system,” he told CNBC.
In general, Tesla is not very easy to function in the Chinese market and because of a lot of competition. Russo says the American automaker is presenting an old portfolio (the Model 3 was released three years ago and the Model Y two years ago), so price cuts are also a way to beat local automakers introducing newer models.
Photo: Reuters
For example, Chinese BYD sells a very wide range of hybrids:
“It’s a weapon that Tesla doesn’t have,” Russo says, adding that BYD also outperforms Tesla twice in clean battery production.
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Musk’s trip is the continuation of a series of visits by US tech CEOs to China. Since the country lifted its “zero COVID-19 policy” and reopened its borders, Apple’s Tim Cook, JPMorgan’s Jamie Dimon and other executives have already been visiting Beijing.
The head of Tesla has already held meetings with the ministers of foreign affairs, trade and industry of China, and also had lunch with Zeng Yuqun, head of the leading supplier of lithium-ion batteries CATL. Musk is expected to meet with other Chinese officials and visit a factory in Shanghai later this week. In March, Reuters reported that the billionaire sought a meeting with Chinese Prime Minister Li Qiang.
Source: CNBC, Reuters
