Why did Trump so strongly support Tesla's establishment in China?

For Elon Musk, there has recently been a bad news and good news.

The bad news is that Tesla is facing capacity difficulties. In the third quarter, only 222 Model 3s were delivered, and 40,000 customers paid for the deposits. The problem of "difficulty" plagued Musk for a long time. What's even worse is that in the second quarter of 2017, Tesla Motors reported revenue of $2.985 billion in the third quarter, which was higher than the $2.298 billion in the same period of last year. The net loss was $671 million. In the same period of last year, the net profit was $22 million.

However, a good news can regain confidence in Musk, whose news that Tesla’s plans to invest in solely funded factories in Shanghai has received a positive response from the Chinese government and Tesla.

On the 26th, the spokesperson of the Ministry of Commerce spokesperson for the first time confirmed that at present, Tesla, an American electric vehicle manufacturer, is communicating with the relevant departments of the Shanghai Municipal Government.

According to CNBC’s latest report, Musk stated to analysts yesterday: Tesla's planned factories in China may focus on manufacturing the Model 3 models known as Volkswagen Tesla for China and neighboring countries, and The Model Y launched will have a planned annual production capacity of several hundred thousand vehicles. He expects that production will officially begin in three years time.

This will be the breaking point of the capacity bottleneck.

Loss of the sale or steady profit does not lose?

Tesla’s progress in this important work has benefited from the relaxation of China’s policies.

In June, the National Development and Reform Commission and the Ministry of Industry and Information released a document granting an exempt status to the pure electric passenger car project. A foreign car company may establish a third Sino-foreign joint venture new energy automobile company in China; In September, the Ministry of Commerce spokesman spoke at the summit: The Chinese government The government will quickly formulate policies and measures to reduce restrictions on foreign investment in the field of new energy vehicles and continue to promote the opening up of this field.

Coincidentally, the news that Tesla will be made domestically has been “fried” to a high level.

On June 22nd, a picture of the site that Tesla had signed with the Shanghai Municipal Government had burst into the red network. Many people thought that the factory construction rumor was finally settled. However, according to media reports, the two sides finally failed to reach a consensus. Shanghai Lingang issued an announcement denying that it will cooperate with Tesla to build a factory.

In fact, Musk has expressed many times that he wants to build automobile and battery manufacturing centers in Europe and Asia. Musk had publicly stated in 2015 that building a plant in China is expected to reduce the price of cars in China by one-third. At present, its price in China is about 50% higher than that in the United States. He also believes that China will be Tesla's second largest market and predicts that its sales in China will account for more than one-third of global sales.

Musk’s ambition is clear, but the localization process has been repeatedly frustrated. Facts have proved that this new energy car market cake is not so good.

In 2013, Tesla’s trademark was pre-registered. Tesla’s Chinese and English trademarks “Tesla” and “TESLA” were registered as early as 2006. In addition, there are restrictions on China's entry into China. The conditions for foreign car brands entering the Chinese market are to cooperate with domestic companies to establish joint venture brands or companies controlled by domestic brands. Although this can avoid a 25% tariff, it has to share profits and technology with local partners.

While Tesla entered China this time, he chose to set up a “sole proprietorship,” and although 25% of the tariffs are indispensable, a 100% controlling stake can allow him to “eat the food alone.” According to estimates by US financial media, production in China can reduce the cost of bicycles by 20% to 30%. The issue of production capacity has been solved, and profits can still be enjoyed. This step of Musk is quite steady.

What kind of abacus did Trump and Musk fight?

The localization of Tesla means that it will be the first foreign car company to wholly own a factory in China.

Why did not other car companies do, Tesla did it?

This starts with Trump's visit to China.

On November 8th, Trump is about to open a trip to China. Musk is very likely to accompany him, and Tesla's entry into China may be one of the important achievements. According to foreign media reports: This successful negotiation is the result of Trump's good offices. In other words, Tesla’s plan to enter China is supported by Trump.

In addition, as many as 40 senior executives (predictors) accompanied the company, mainly energy and bulk companies, such as GE, Westinghouse, Alaska Gas Pipeline Development, Boeing, and Qualcomm. The visit to China may bring a billion-dollar investment agreement.

Bloomberg said that one of the largest agreements the Trump administration is currently negotiating is Sinopec’s multi-billion-dollar energy investment, which will bring thousands of jobs to the storm-ridden state of Texas and the United States Virgin Islands. During the election campaign, he declared: “Only he has the ability to attract employment and investment back to the United States.” This agreement will reduce the trade deficit between the two countries (each year) to nearly US$10 billion. Earlier, the public was dissatisfied with Trump's handling of hurricane disasters.

In addition, Trump may also "sell" China's plans for excess gas. These will become Trump's governing power. However, the following series of actions were not satisfactory.

Some people think that Tesla is using Sino-U.S. trade relations to buffer US policy resistance.

In fact, before the US presidential election last year, Musk had publicly expressed support for Hillary. However, after Trump was elected, there was a terrible reversal of Musk's attitude. He and many former Uber CEO Travis Kalanick and many other big coffee giants joined the presidential advisory committee and became members of the president’s strategy and policy forum. Moreover, the two met three times in the first half of this year.

However, the relationship between the two seems to have been "swing."

On June 2 of this year, Trump formally announced that the United States will withdraw from the Paris Agreement. This action has aroused a large group of attackers of American technology technocrats, including Musk. He issued a tweet saying : "I will leave the Presidential Advisory Committee. Climate change really happened. Withdrawing from the Paris Agreement would be of no benefit to the United States or the world." Then, Musk furiously retired from the White House - two months later, Tren. Pou announced the dissolution of two manufacturing advisory committees and strategic and policy forums.

Trump has always made a fuss about North Korea and China-US trade surpluses.

Bloomberg recently issued a statement saying: "If Trump cannot stop North Korea from launching nuclear weapons, it will repeatedly threaten trade war with China." The article cites the views of analysts from Hong Kong Macquarie Securities Co., Ltd.: "China may have multiple reasons now. To adjust policies, including easing tensions with the needs of the United States, and the need for new technologies for foreign new energy vehicles."

For Trump, his ruling style and personal performance are often ridiculed. What he needs most is to increase public satisfaction and complete KPIs. As mentioned above, if Trump’s visit to China is a worthwhile trip, signing a large bill and reversing China’s trade surplus will become one of its important achievements. For Musk, from all aspects, the establishment of a factory in China is a business that “makes a steady gain”.

Although the relationship between Trump and Musk is unpredictable, this does not affect the two people's interpretation of the "big interest before the interest." In the construction of factories in China, they achieved a win-win situation.