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

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The electric automaker has been summoned by five Chinese regulatory agencies 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) . He said regulators were concerned about several problems with the cars including “abnormal acceleration” and “battery fires”.

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

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

“[We will] reflect deeply on the operational shortcomings of the company and strengthen self-inspection overall, ”Tesla said in a statement posted on Chinese social media website Weibo in response to SAMR’s remarks.

“We will strictly abide by Chinese laws and regulations and always respect the rights of consumers,” the automaker said, adding that it “would better contribute to the healthy development of the Chinese new energy vehicle market.”

It is not clear whether regulators intend to punish Tesla or change anything in the way it operates in the country. But the controversy shows how seriously Beijing takes regulation, even among companies it seems to favor.

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

Strong support

Tesla has been in China since 2013, but over the past few years, it has built a strong relationship with the Chinese government.

When the automaker negotiated terms with authorities in 2017 for the construction of its Shanghai Gigafactory, it managed to retain complete control – an unusual arrangement, as its peers were generally required to partner with Chinese companies if they did. wanted to start a local business at this time. (China announced in 2018 that it would ease the auto sector’s rules on foreign ownership by 2022.)

Tesla has started deliveries of Chinese-made Model Y

Since then, Tesla has enjoyed strong government support. It was the only foreign automaker without a local partner to win big tax relief for its cars in 2019. The company also quickly resumed production during the coronavirus pandemic in part thanks to support from the local government.

Musk has also convinced Chinese authorities and citizens and is a welcome guest in the country. He danced on stage during the debut of the Shanghai-made Model 3 early last year, which went viral on Weibo. Premier Li Keqiang even once said he would be happy to give Musk a “green card for China” after the American entrepreneur said he “loves China very much.”

Tesla’s forays into China have paid off. The company sold $ 6.66 billion worth of cars in China last year, contributing 21% of its revenue, according to a recent company filing. That’s more than double what he sold in 2019, when he had yet to start making cars there.

A sour perception

But in In recent months, the perception of Tesla in China has started to deteriorate. Last November, the state-run Xinhua News Agency attacked the company after one of its lawyers wrote to US regulators about a recall in China, accusing “driver abuse.”

“Tesla shifted the blame to Chinese users’ driving habits and regulatory pressure,” Xinhua’s Nan Chen wrote in an opinion piece published in Liaowang, a news agency magazine. “This kind of ‘Tesla 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 that an overload on the state’s power grid caused a charging accident which damaged the car. A local branch of the power company in charge of the grid denied that was to blame and told Tesla it should “carefully investigate the cause” of the car’s problems.

Tesla wrote on his Weibo account last week that the video was edited and the employee provided “several possible factors” for the car’s problems. Even so, the company apologized.

“We are deeply sorry for the misunderstanding caused to Internet users and the disturbance” caused to the authorities in power, the company said.

State media, however, built up after the power grid incident. Earlier this month, Xinhua once again lambasted Tesla for his “arrogant attitude”, accusing the company of “passing the buck again”.

The Global Times, a state-owned tabloid, also took the company to task.

Although Tesla is arguably the most active U.S. company to invest in China, the Silicon Valley-born automaker falls short of understanding Chinese consumers, as evidenced by its attitude in a series of scattered accident reports including explosions, drivers losing control and faulty brakes, “read an article in the Global Times.

Other challenges

Regulatory pressure isn’t Tesla’s only challenge in China moving forward.

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

But the competition is getting fierce. BYD toppled Tesla as the best-selling electric car brand in China last month, and other automakers such as Nio, Geely and Xpeng are trying to come together.

While China has welcomed Tesla so far, experts point out that ultimately Beijing has its own ambitions to lead in tech and other areas. In other words: once local businesses are competitive, the country doesn’t need foreign businesses much.

– CNN’s Beijing office contributed to this report.

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