Musk's China trip and what it means for Tesla in the Asian market

Tesla CEO Elon Musk made a surprise day-long visit to Beijing, where he held high-level discussions over the deployment of his potentially game-changing Full Self-Driving (FSD) software and the authorisation for data transfer abroad.

Around the same time on Sunday as Musk landed in Beijing, a Chinese industry association published a list of ‘intelligent connected vehicles’ that comply with the country's data security standards, including Tesla vehicles manufactured in China.

Musk's meeting with Chinese Premier Li Qiang coincided with the Beijing Motor Show, where Chinese automakers are showcasing their newest electric vehicles, such as Xpeng, which have been striving to gain an edge over Tesla by introducing similar software features.

Tesla is absent from this year’s show, which is scheduled to run throughout the week.

While the world’s biggest electric car maker produces roughly half of its vehicles in Shanghai, where it operates its largest manufacturing facility outside of the United States, Chinese automakers have introduced numerous electric vehicles over the past few years. Some of these vehicles directly compete with Tesla, often offering lower prices.

Caught between the US and China

Despite customer demand, Tesla has not yet made its FSD software – the most autonomous version of its autopilot vehicles – available in China, even though it was rolled out four years ago.

The American automaker has come under scrutiny from both sides as it tries to maintain an equilibrium between Washington and Beijing, all while its own fate hangs in this balance.

While Tesla cars enjoy considerable popularity in China, they have faced bans from certain government offices due to concerns regarding the US-based company's data collection capabilities.

Earlier this year, the Biden administration initiated an investigation into whether imported cars from China pose national security threats, given their potential to gather data and transmit it back to China.

Securing the data approval from China marks a breakthrough for the company, expected to revitalise declining sales and build trust in the Chinese market, potentially facilitating more dynamic transactions between China and the US.

Li Qiang highlighted in Sunday's meeting that Tesla's operations in China could serve as a successful example of economic cooperation between Washington and Beijing.

The strong rapport between Musk and Li Qiang is rooted in the Chinese leader’s role during Tesla’s negotiations for the factory in Shanghai, which opened in 2019 and later became the company’s most productive factory worldwide.

"Honoured to meet with Premier Li Qiang. We have known each other now for many years, since early Shanghai days," Musk posted on X with a picture with Qiang.

Chinese market is the missing piece

Musk's sudden trip to China followed his cancellation of a planned visit to India to meet with Prime Minister Narendra Modi.

This shift comes amid Tesla's pressing issues, such as declining quarterly revenue, a shrinking presence in China's electric vehicle market, global workforce cuts, and reports of halted new hires, particularly among Chinese college graduates.

Although Musk is interested in entering the Indian market despite tax obstacles, and plans to introduce Starlink there, China appears to be his main priority for now.

Some analysts say that offering FSD in the Chinese market is the crucial missing piece for Tesla's long-term valuation. Four years after the rollout, last week, the CEO hinted that this may occur “very soon” in response to a user's question on X.

For years, Musk has pledged that Teslas would serve as fully autonomous "robotaxis".

Back in 2015, he forecasted full autonomy by 2018, and in 2019, he anticipated robotaxis would be operational the following year. This month, he announced plans to unveil those in August.

Critics argue that he habitually exaggerates the potential of fully autonomous driving to boost the company's stock price, which has declined due to various challenges, such as competition from more affordable Chinese manufacturers.

In the final quarter of 2023, Chinese automotive giant BYD briefly overtook Tesla as the world's top electric vehicle manufacturer.

Although Tesla regained the title in the first quarter of this year, its absence of new models at the Beijing Auto Show highlights the growing prominence of China's smart new energy vehicle (NEV) sector, indicating its leading position in the market.

Experts say Tesla can accelerate its autonomous driving algorithm training with newly gained access to invaluable data from China's complex traffic conditions, which feature higher pedestrian and cyclist volumes than other markets.

This makes China now much more than a huge market for Elon Musk.