On 28 April, Tesla CEO Elon Musk landed in China meeting Chinese politburo where he met with the Chinese Premier Li Qiang discussing Tesla’s growth and future in China. Soon later, Tesla and Baidu signed a deal for “Full Self-Driving technology in China. Tesla partnered with a domestic company in China for a mapping license before using the FSD technology. Baidu is one of the top 20 entities in China that have been granted top-level qualification with an independent mapping and navigation system and therefore is ideal for Tesla.

What is Full Self- Driving and what does the deal entail?
The FSD software is a driving feature that assists autopilot mode, though not fully automatic they still do require the driver’s supervision. The deal would provide Tesla with access to Baidu’s mapping and navigation technology and give them Baidu’s license. This is essential for the EV carmaker to launch the self-driving technology. Since the deal, the shares of the company have risen by 15 per cent an aggregate evaluation of USD 194 billion making it a USD 615 billion company.

Takeaways from the deal:
First, Tesla’s Shanghai factory
The Shanghai factory called the Gigafactory Shanghai is a manufacturing plant in China operated by Tesla and founded in 2019. The Shanghai plant is the largest and the most productive factory of Tesla, responsible for a major part of the company’s delivery. The Shanghai plant is responsible for shipping over 948,000 vehicles in 2023 which accounts for more than half the company’s output making it pivotal for the company’s future.

Second, China over India
Musk was originally supposed to land in India instead of China and even confirmed his visit to discuss Tesla’s future in India but cancelled it last minute over “heavy Tesla obligation.” The move is widely seen as Tesla trying to cut costs and invest in easier productive options. While India does have robust industry space compared to China it stands much behind. The manufacturing sector also faces other challenges in India like a lack of highly skilled workers and developing industries rather than established ones. 

Third, Tesla is in trouble
The value of the company dropped since January 2024, and its worldwide vehicle delivery fell for the first time in four years. The company is facing criticism over delayed car rollout and the lack of genuine driverless capabilities. To revive and further the future of the company Tesla is pitching to China to address the grievances facing it.

Fourth, Musk’s policy is contrary to that of the US
The policy followed by Tesla's CEO stands contrary to the US policy of systemically divesting, decoupling and de-risking from China. In recent years the US administration has focused on imposing stringent sanctions against Chinese companies, firms and even individuals. Encouraging America and its allies to shift away from China by finding alternatives. Musk's policies are the opposite where Washington has often securitized his “pro-China” sentiments. Musk often expressed his administration to the Chinese economic developments where he was quoted saying: “The economic prosperity that China has achieved is truly amazing, especially in infrastructure!”

Fifth, Utilizing China’s capabilities
Elon Musk’s interest in China also lies in the industrial capability and capacity China has. Chinese industries are known for their mass manufacturing and they are often accused of “over capacity” ruining the market. Chinese manufacturers have established themselves as developed industries with highly skilled workers. Other than that China has one of the world’s largest electronic vehicle markets and that provides Musk additional incentive to invest in China.

Sixth, Musk’s inclination in line with the EU
Musk’s tilt towards China stands in line with other European countries that are highly critical of Chinese political practices but do not want to isolate themselves from the vibrant Chinese market. These countries and their private firms want to utilize the extensive market China has to offer and the economic gains it can bring.

References
“Why Elon Musk chose to go to China rather than visit India,” The Economic Times, 30 April 2024
“Tesla Comes A Step Closer To Self-Driving Approval In China After Deal With Baidu,” Forbes, 29 April 2024
“Tesla maps out new territory in China with Baidu deal,” The Register, 01 May 2024
“India can’t replace China for US EV makers amid fierce competition,” Global Times, 22 April 2024