Tesla CEO Elon Musk is confident that his automaker can go toe-to-toe with Chinese EV producers without the help of trade barriers, despite issuing a gloomy prediction for other OEMs as BYD and others ramp up export strategies.
After previously dismissing the prospect of Chinese EVs being competitive in the West, Musk has recently begun to acknowledge the threat posed by Tesla's emerging rivals.
And, amid ongoing scrutiny of state support for Chinese automakers in the EU and US, Musk made sure to highlight to policymakers the potential disruption Chinese BEV imports could cause.
“Frankly, I think if there are not trade barriers established, they will pretty much demolish most other car companies in the world,” Musk said on Tesla's fourth quarter earnings call.
His deliberate qualification of "most other" car companies suggests Musk is comfortable with Tesla's ability to tackle what has been dubbed by Carlos Tavares, CEO of Franco-Italian conglomerate Stellantis, a "Chinese invasion". In the last week, BYD launched its first vehicle carrier ship, which is stocked with over 8,000 cars and is now headed for the port of Ennore in India, and reportedly later to Europe.
Chinese EVs currently face a 25pc import duty in the US, although some lawmakers are pursuing a hike in the tariff to impact the affordability of Chinese imports more severely. Even with a 25pc duty, certain Chinese offerings such as BYD's Seagull, which sells for the equivalent of c.$11,000, could still undercut the US EV market significantly, albeit depending on any tweaks to the product that might be required for the US market.
The European Commission is also in the middle of a probe into alleged unfair trade practises in the Chinese auto industry, and is considering introducing tariffs above the current 10pc. Some EU member states, such as France, have already taken independent steps to raise their drawbridges higher.
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Musk first credited the Chinese competition in a November interview, saying that "Chinese companies are extremely competitive; by far our toughest competition is in China".
"There are a lot of people out there who think the top ten car companies will be Tesla followed by nine Chinese companies, and I think they might be right," he said at the time.
Musk is non-committal on what any measures to retard Chinese imports might be. But he is less circumspect about the impact if action is not taken.
“Our observation is generally that the Chinese car companies are the most competitive car companies in the world. So I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established," Musk says.
But despite Musk's bullishness, Tesla has already resorted to a sequence of price cuts on its EVs throughout 2023, and sacrificed its margins in the process. While Musk says that price cuts were a ploy to sustain demand amid high interest rates, the move is a tacit admission that EV demand is more concentrated towards lower price points that Chinese automakers could offer if higher tariffs are not installed.
Partnerships
Given Musk's acknowledgement of Chinese firms' growing strength, Morgan Stanley analyst Adam Jonas asked if he could "envision a scenario where Tesla could partner with a Chinese OEM to help accelerate sustainable transport in markets like Europe and the US".
But, while Musk openly admits to buying batteries not just from China's largest maker Catl, but also his rival automaker BYD, he is unconvinced that |Tesla would benefit from partnerships with other OEMs, Chinese or otherwise.
The exceptions are charging — giving other carmakers' vehicles access to the Tesla's supercharger network — and software. "We are also happy to license full self-driving, perhaps license other technologies, anything that could be helpful in advancing the sustainable energy revolution," the CEO says.
Ciaran has written about finance, politics and culture. He is passionate about e-mobility and what it means for our way of life.
Ciaran has a Masters in Ancient Philosophy from Oxford University.
