Tesla in pole position to win U.S.-China trade war

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HONG KONG: Tesla may be about to win the U.S.-China trade war. Amid escalating rhetoric between Presidents Donald Trump and Xi Jinping, Beijing on Tuesday set deadlines for scrapping pesky ownership limits onXi Jinping, starting with “new energy vehicles” this year. Ford and Daimler will be pleased, but assuming the tariff tit-for-tats don’t get worse, Elon Musk’s $50 billion electric-car company should benefit most.

For some time, China has been talking a big game about winding down onerous joint-venture requirements for overseas manufacturers. They typically involve transferring technology, with the goal of incubating local rivals so they can ultimately compete directly against foreign brands. They are naturally a major trade irritant. Musk engaged in a rather public spat with Chinese officials over the demands. “It’s like competing in an Olympic race wearing lead shoes,” he tweeted, and called on Trump for help.

It was a bold, if calculated, risk. The People’s Republic proposes to become the world’s largest market for electric vehicles, to relieve itself of dependence on oil imports and ease choking urban smog. China wants annual sales of new-energy vehicles to reach 7 million by 2025. Tesla’s revenue in China doubled last year to $2 billion despite hefty tariffs on imports, compared to approximately 50 percent growth in the United States. Musk, who left Trump’s advisory councils last June after the U.S. president abandoned the Paris climate accord, could reasonably expect even more with certain policy problems cleared away.

Provoking Chinese officials is always dangerous, but the JV requirement was a bigger business hazard. Unlike with the traditional passenger-car market, where Western brands such as Ford, Mercedes and Volkswagen are entrenched, China’s electric-vehicle sector is wide open, and subsidies and policy support have attracted waves of nimble startups. Musk’s outfit had a lot to lose by handing over technology secrets.

Tesla should now be free to set up its planned Shanghai factory independently. That alone doesn’t guarantee success; local competitors look increasingly fierce. Even so, for a company bedeviled of late by production delays, worker injuries, growing questions about capital needs and a nearly 25 percent drop in its stock price since it peaked last June, this could be a welcome victory.

China’s National Development and Reform Commission said on April 17 the country would scrap foreign ownership limits on electric-car manufacturers by 2018 and for trucks and buses by 2020.

China also will end similar requirements for shipping and aircraft in 2018, the state planner said, and intends to lift restrictions on traditional passenger vehicles by 2022.

All foreign auto brands are currently required to build factories in 50-50 joint ventures with domestic companies. They cannot establish wholly-owned production facilities. China also imposes 25 percent tariffs on vehicles imported from abroad, although the government has said it would lower these duties.—Reuters

 

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