Apr 10, 2023 - Economy

Tesla can’t quit China

Illustration: Tiffany Herring/Axios

Tesla is far from abandoning the Chinese market, and is, in fact, leaning the other way.

Why it matters: The company risks tying parts of its future to a region driven in large part by the emotions of one political party.

  • Tesla’s entrenchment inside of China also risks attracting scrutiny from U.S. officials growing increasingly wary of their international counterparts.

The latest: Tesla will expand its presence in Shanghai with a new factory focused on making its Megapack, battery storage products the size of international shipping containers that can be used to help stabilize energy grids.

  • Sunday’s news comes as the Biden administration is considering regulation aimed at prohibiting U.S. investment in certain sectors in China that could augment Beijing’s military power.

The big picture: More broadly, U.S. companies have been proactively cutting investments in China following the country’s disruptive COVID policies.

  • Tesla’s peers in Big Tech — Apple, Google, Microsoft — have shifted their attention to building alternative manufacturing hubs in India and Vietnam.

Yes, but: The Chinese government and Tesla have had a “symbiotic” relationship.

  • And the elevation of Tom Zhu, Tesla's China chief, to No. 2 at the company earlier this year “sends a strong signal that the Austin, Texas-headquartered company intends to have feet on both sides of the fence,” Katrina Northrop notes in The Wire China.

Our thought bubble: The juice is clearly worth the squeeze — for now.

  • About 22% of Tesla’s revenues come from China, the world's largest EV market that's also hungry for grid-storage batteries.

What to watch: CEO Elon Musk has said he expects Tesla's energy and battery business to be "roughly the same size" as its EV business.

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