Donald Trump's trade wars continue to put the world in a tight spot, and as the price of goods threatens to go through the roof, the tariffs could have an unexpected effect on Elon Musk. While the tech billionaire is still far and away the richest man in the world, his precarious position within Tesla continues to dominate the news.
It's no secret that Tesla has had a rough start to the year, with the electric vehicle manufacturer's current predicament being tied to Elon Musk's position in American politics. While Tesla boomed in the aftermath of President Donald Trump winning the election, it’s since felt the backlash to Musk's role as head of the Department of Government Efficiency.
Alongside calls for boycotts and shareholders demanding Elon Musk be fired, there have been scenes of violence at dealerships and even shots being fired.
Musk recently faced an uncomfortable earnings call where he had to admit there's been a 70% drop in profits. This won't be helped by the trade wars, and while Tesla won't be as badly affected as some of the big foreign car manufacturers, there's no escaping the fact that a lot of work goes on at its China gigafactory.
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As reported by The Independent, China has some serious leverage over Musk, which could be crucial in the trade wars when considering his closeness to the POTUS.
The Shanghai Gigafactory produces around half of the 1.8 million Teslas that are sold annually around the world, meaning that if the Chinese Communist Party shut it all down, Musk would be in more than a tight spot. Asked about what would happen if China pressed the big red button and shuttered the Gigafactory, venture capitalist Prescott Watson said, "I mean, it's f**ked."
Explaining what would happen to the EV giant, Watson continued: "Tesla sales basically go off a cliff by 50 percent overnight... its ability to actually power vehicles built in the U.S. and Europe may go down by a quarter or half. And if you don't have the power, you can't really build the vehicles."
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Even though the Communist Party hasn't threatened this kind of action, it's noted that it has done similar in the past and punished tech barons who've crossed it in the past.
Referring to how China helped Tesla grow into what it is today, Watson continued: “Because unlike any country in the West you can just build a factory in one year and then have it producing a million vehicles a year 24 months later. It's unbelievable how much better the Chinese are at doing this kind of stuff."
Shanghai-based auto industry consultant Bill Russo said it was a match made in heaven to start with, but moving forward, Musk could find himself in a difficult position: "Tesla is a fast horse that if you allow them to race with the Chinese companies, the Chinese companies will race faster...They let [Musk] in. They built the racetrack for him."
By working with then Shanghai party secretary Li Qiang, Musk shook hands on a deal that let Tesla keep 100% ownership of the gigafactory. It was a lucrative one that led to a boom in the EV market and saw China become the leader in this sector.
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As well as Tesla selling around 37% of its vehicles to Chinese customers in 2024, that doesn't take into account the huge number of export models. Watson tells us: "Elon owes a hell of a lot to the Chinese...China has gone from nothing, to important, to critical for Tesla."
We're reminded that COVID-19 shutdowns led to a 18% drop in vehicle deliveries and hit Tesla hard in the pocket.
Thankfully, Russo concludes that China needs Musk as much as he needs China: "To be considered open for business, China needs Tesla. They need examples of [foreign] companies that can still be successful in that market... and Tesla is probably the most obvious example."