Source: Traveler
Authors: Wang Jingyi, Guo Huaiyi

There are few foreign entrepreneurs coming to China who, like Tesla CEO (CEO) Elon Musk (Elon Musk), get widespread attention from the political community, the business community, and even ordinary netizens.

On the morning of May 30, Musk's private jet arrived at Beijing Capital International Airport from the US; on the same day, State Councilor and Foreign Minister Qin Gang met with Musk in Beijing.

A traveler exclusively confirmed from multiple cross-sources that after the meeting with Qin Gang, Musk met with Chairman Zeng Yuqun of Ningde Times. This was the first entrepreneur Musk met during his trip to China. The two sides discussed issues including but not limited to the supply of power batteries.

The next day, Musk went on and on. On May 31, Minister of Industry and Information Technology Jin Zhuanglong met with Musk in Beijing. The two sides exchanged views on the development of new energy vehicles and intelligent connected vehicles. Minister of Commerce Wang Wentao also met with Musk on the same day. The two sides had extensive and in-depth exchanges on topics such as Sino-US economic and trade cooperation and Tesla's development in China.

Outside of the trip, Musk praised China's aerospace on Weibo the day he arrived in China: “China's space program is far more advanced than most people realize.”

On social media, this visit received a lot of attention, and even “What did Musk eat on the first day he went to Beijing” once reached the top of Baidu's hits on May 31.

The significance of this visit is extraordinary. According to the “Economic Daily” report, on May 27 local time, the Biden administration declared that the 14 member countries of the “Indo-Pacific Economic Framework” have basically completed agreement negotiations to “improve supply chain resilience and security”, which will strengthen the supply chain for basic materials such as chips and key minerals in order to “reduce dependence on China.” However, Musk's current visit to China has certainly strengthened his confidence in investing in China's industrial chain.

Musk also has many businesses, such as Tesla FSD (full autonomous driving function, full self-driving function), energy storage products, Starlink, etc., which have not entered China; they all need him to break the ice and promote them. This is probably the reason why Musk interacted frequently with the political community during this trip.

Outsiders generally expect that during this trip, he will announce the launch of new projects in China, and may also announce and investigate the launch of the remodeled Model 3, FSD's testing in China, and site selection for a second factory.

Interacting frequently with the political community, what policies does Musk want

Musk actively interacted with the Chinese political community during this visit.

According to the official website of the Ministry of Foreign Affairs, on May 30, State Councilor and Foreign Minister Qin Gang met with Musk in Beijing. Qin Gang said that Chinese modernization is a modernization with a huge population, common prosperity for all people, and harmonious coexistence between man and nature. It will create unprecedented growth potential and market demand, and the prospects for the development of China's NEV industry are broad. China will continue to unswervingly promote a high level of opening-up to the outside world and is committed to creating a better market-based, rule-of-law, and international business environment for enterprises in various countries, including Tesla.

Musk said that the Chinese people are diligent and intelligent, and China's development achievements are taken for granted. The interests of the US and China are intertwined, as if a conjoined baby were inseparable from each other. Tesla opposes “decoupling and breaking the chain” and is willing to continue to expand its business in China and share China's development opportunities.

On May 31, Minister of Commerce Wang Wentao met with Tesla CEO Musk. The two sides had extensive and in-depth exchanges on topics such as Sino-US economic and trade cooperation and Tesla's development in China.

Wang Wentao said that China is comprehensively promoting Chinese-style modernization and expanding high-level opening-up to the outside world, which will bring new development opportunities to enterprises around the world, including Tesla. China will continue to provide efficient and pragmatic service guarantees to support the long-term and stable development of foreign-funded enterprises in China.

Musk agreed that the US-China relationship was not a zero-sum game, thanked the Chinese side for providing support and guarantees to Tesla's Shanghai factory during the COVID-19 pandemic, praised the vitality and potential of China's development, had full confidence in the Chinese market, and was willing to continue deepening mutually beneficial cooperation.

Musk's friendly interaction with the Chinese political community at this time is a strong signal.

According to the “Economic Daily” report, on May 27 local time, the Biden administration declared that the 14 member countries of the “Indo-Pacific Economic Framework” have basically completed agreement negotiations to “improve supply chain resilience and security”, which will strengthen the supply chain for basic materials such as chips and key minerals in order to “reduce dependence on China.”

On May 29, Chinese Foreign Ministry spokesman Mao Ning said in response that the formation and development of global production and supply chains is the result of market laws and enterprise choices. Man-made interference with market behavior, politicization of normal economic and trade activities, and artificial barriers to semiconductor and other industry partners is the biggest risk affecting supply chain stability.

At the same time, Musk also needs to repair the relationship. In May, with the intervention of China's State Administration of Market Supervision and Administration, Tesla recalled more than 1.1 million electric vehicles in one fell swoop, close to its total sales volume since entering China. In response to the controversial single-pedal model, Tesla provided car owners with more options for energy recovery models.

Musk also has many businesses, such as Tesla's FSD, energy storage products, Starlink satellite business, etc., which have not entered China; they all need to break the ice and promote them themselves.

Outsiders generally expect that FSD's testing in China and site selection for the second plant will all be the key topics of this trip.

FSD's entry into China is an issue that has been hanging over Tesla's head for a long time. Previously, FSD, which sold for 15,000 US dollars (about 104,000 yuan), had already begun testing in North America. To achieve global popularity, the Chinese market is essential. However, China is cautious about autonomous driving; all car companies, including Tesla, can only achieve assisted autonomous driving under the supervision of a human driver.

In April of this year, there was news that Tesla would soon carry out extensive testing of FSD in China. In May, Chen Cole, deputy director of the Intelligent Manufacturing Promotion Department of the Shanghai Economic and Credit Commission, said that Shanghai will further deepen cooperation with Tesla to promote the deployment of functional sectors such as autonomous driving and robotics in Shanghai. The above news is viewed by outsiders as an outpost for Tesla FSD to fully enter China.

Then there's the site selection for Tesla's second factory. At the end of 2021, news came pouring in that Tesla would be building a second factory in China. Among them, the “Liaoning Release” public account hosted by the General Office of the People's Government of Liaoning Province even published an article called “Five Grabs” in the Dadong District of Shenyang City and competes to be the vanguard of revitalization and development, which mentions, “Combining urban renewal in the civil service area to open up space for industrial development and lay the foundation for the implementation of major new energy vehicle projects such as Tesla.” However, Tesla's Chinese side made it clear that the above information was untrue.

First to meet Zeng Yuqun, what kind of business does Musk want to talk about

The last time Musk visited China was in January 2020. At the time, he visited Tesla's first overseas gigafactory in Shanghai — Tesla's Shanghai Gigafactory, and delivered the first batch of localized Model 3s.

Over the past three years, Tesla's sales in China have grown rapidly, driving the company's overall sales, revenue, and profits to soar. The Shanghai factory has made a great contribution to Tesla's performance. Musk himself has praised the hard work and efficiency of Chinese employees many times. China CEO Zhu Xiaotong was recently promoted to the company's senior vice president and ranked among Tesla's four core executives.

The Model 3 is a sedan released by Tesla in 2016, and it's been seven years since then. Although the production process is continuously updated on the supply side, the Model 3 is completely different from before, but at the market level, the Model 3 faces fierce competition, sales growth is slowing down, and there is an urgent need to release modified models to stimulate sales.

Therefore, the Mode 3 reform is also viewed by outsiders as a key topic of Musk's visit to China.

On May 30, the first Chinese entrepreneur Musk met after visiting China was Zeng Yuqun. Why?

One is the world's largest electric vehicle company, and the other is the world's largest power battery manufacturer. Cooperation allows both parties to achieve a win-win situation. Beginning in 2020, Ningde Era began supplying Tesla, which is one of the most important supply chain companies in Tesla's localization process.

Benefiting from Tesla's cooperation, the Ningde era has taken the first place in the global power battery industry. According to data from SNE Research, a Korean market research agency, in 2022, the Ningde Era topped the world's highest power battery load volume in 2022 with a total load capacity of 191.6 GWh. The market share reached a record 37%, reaching the top for the sixth year in a row.

According to financial data, Tesla became the biggest customer in the Ningde era for the second year in a row. In 2022, the sales revenue of lithium batteries from Tesla in the Ningde era was 38 billion yuan, accounting for 11.59% of total revenue.

At the same time, thanks to cooperation with China's NEV industry chain represented by the Ningde era, Tesla's global sales have risen rapidly. In 2019, Tesla delivered 368,000 vehicles worldwide. In 2020, it reached 499,000 vehicles, and in 2022 it reached 1.31 million vehicles.

However, there is no conflict between the two. In order to reduce costs as much as possible, Musk did everything possible. At one point, the relationship with the supplier was tense. Zeng Yuqun once complained in an interview: “Musk has been talking about cost issues all day and night asking us to be cheaper.”

At this meeting, in addition to reducing costs and increasing efficiency and deepening cooperation, the two sides are also expected to discuss the construction of a factory in the US during the Ningde era.

In March of this year, there were media reports that Tesla was seeking cooperation with Ningde Era to establish a battery factory in the US. It is reported that this factory will follow the cooperation model between Ford Motor and the Ningde era. At present, Ningde Shidai has reached a cooperation with Ford Motor. The battery factory funded by Ford Motor Company and supported by Ningde Shidai with technical and service support will be put into operation in 2026.

According to the provisions of the US “Inflation Reduction Act”, only automobile companies that produce and assemble power batteries in the US can receive financial subsidies that can offset one-third of the cost of batteries. Consumers can only get 7,500 US dollars in consumption subsidies when they buy such electric vehicles.

Electric trains are followed by energy storage, and Tesla and China complete each other's industrial chains

“Before entering China, Tesla's suppliers in the US were not of high quality. Judging by European public standards, the quality performance was poor.” Zhang Junyi, managing partner of Oliver Wyman, told a traveler that Tesla has established cooperative relationships with some top suppliers in the Chinese automobile industry, such as Yanfeng, which produces interior and seat systems, and the Ningde Era, which produced power batteries, etc., which further optimized the quality and cost of domestic Tesla.

According to incomplete statistics from Oliver Wyman Consulting, Tesla has nearly 100 core suppliers in China, covering almost every link in the NEV industry chain, from key batteries, motors, and electronic controls to charging piles, chassis, and interiors.

In addition to improving quality control, China's supply chain has also reduced Tesla's costs. Tesla has stated that the unit cost of manufacturing the Model 3 at the Shanghai plant is 65% lower than the production cost of the US factory.

Unlike outsiders who think that Tesla has activated China's NEV market, Zhang Junyi believes that Tesla and the Chinese automobile industry chain have achieved mutual learning and progress together. “This is inseparable from the contributions of the Shanghai factory and the local supply chain in China.”

The Chinese industrial chain has provided all-round support for the development of Tesla's electric vehicles, and Tesla already has a very close cooperative relationship with the Chinese industrial chain. When the Chinese industrial chain supported Tesla's electric vehicle business, Musk set his sights on the energy storage business again.

On April 9, 2023, Tesla announced that it will build a new gigafactory in Shanghai to specialize in the company's energy storage product Megapack. This is Tesla's first Megapack gigafactory outside of the US.

According to the plan, the Shanghai Megapack Gigafactory is scheduled to start construction in the third quarter of 2023 and put into operation in the second quarter of 2024. The initial plan is to produce 10,000 commercial energy storage batteries per year, with an energy storage scale of nearly 40 GWh. The product supply range covers the global market.

This is also a potential cooperation project between Tesla and the Ningde era. The Ningde era already supplied energy storage batteries to Tesla America, and the Shanghai Energy Storage Plant has yet to identify battery suppliers.

It should be noted that Tesla's energy storage products are currently not open to Chinese users. Why is Tesla starting production of an energy storage product that has not been sold in China yet?

“The energy storage industry chain and the new energy vehicle industry chain are highly coincident.” Bai Yiyang, vice president of CMB's International Research Department, told a traveler that, for example, the components required for energy storage products such as batteries, inverters, and thermal management are similar to those of new energy vehicles. Tesla has also benefited from China's NEV industry chain, so it's understandable that the new Megapack gigafactory chose to rely on the Chinese industrial chain.

Editor/jayden