Here Is How China Is Rapidly Becoming a Huge Headache for Tesla

Rohail Saleem •
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Tesla China

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

It was not that long ago that China helped save Tesla from near-certain ruination by enabling a rapid scaling up of the Model 3 and Model Y production lines at Giga Shanghai. Now, however, China is utilizing the technology transferred from Tesla and other Western companies to turn the proverbial tables, prompting the US Treasury Secretary, Janet Yellen, to issue a clarion call of sorts on the Asian giant's excess manufacturing capacity vis-a-vis "electric vehicles, lithium-ion batteries, and solar."

Janet Yellen on China's Excess Manufacturing Capacity

The US Treasury Secretary, Janet Yellen, was in China for the past few days to discuss key economic matters and to "put a floor under the relationship." As part of her prepared remarks, the Treasury Secretary noted:

Related Story Here Is How Tesla Could Now Start Burning Between $4 Billion and $5 Billion In Cash Every Quarter

"China has long had excess savings, but investment in the real estate sector and government-funded infrastructure had absorbed much of it. Now, we are seeing an increase in business investment in a number of “new” industries targeted by the PRC’s industrial policy. That includes electric vehicles, lithium-ion batteries, and solar."

These comments underscore the unease with which the Biden administration is currently viewing China's rapid deployment of resources to capture a global foothold in key industries.

For its part, though, China maintains that its "new-energy vehicle" production capacity is merely a fraction of the oncoming market demand, particularly from developing countries.

China's Deployment of Tesla's Giga Presses

Of course, China's EV excess production capacity did not develop overnight. Instead, it is the result of a years-long technology transfer regime.

For instance, as part of its efforts to quickly ramp up the production of its Model 3 and Model Y at Giga Shanghai, Tesla helped China's LK Group to manufacture the world's largest casting machines, which are now being used by at least six Chinese EV manufacturers.

What's more, Xiaomi's just-revealed Porsche-look-alike, the $25,000 SU7 EV is also expected to utilize these casting machines to achieve phenomenal economies of scale. Xiaomi already has an established ecosystem of appliances and mobile devices, and the company is now pitching its SU7 electric vehicle as a harmonious bridge, replete with videos of its automated vacuum cleaners working inside the EV.

Our readers would remember that Reuters published a highly contentious report last week, disclosing Tesla's apparent willingness to abandon its upcoming cheaper Model 2 in the face of serious competition from China. The report came just days after Xiaomi's SU7 managed to record 90,000 orders within a mere 24 hours, leading to the highly enviable situation where Xiaomi has already sold the entirety of its 2024 planned production.

Of course, Elon Musk quickly clamped down on the veracity of Reuters' reporting. However, this has not stopped continuing speculation as to the fate of the $30,000 Model 2.

For the Model 2, Tesla is relying on its so-called "unboxed" approach to manufacturing, which borrows heavily from how structures are built with Legos. Yet, the question remains: how long before China takes away this advantage as well?

China Enters the Robotaxi Sphere to Give Tesla a Fierce Bout of Competition

Elon Musk announced on Friday that Tesla's robotaxi will be unveiled on the 08th of August, 2024. The vehicle is expected to leverage the same platform as that of the Model 2. This disclosure has been met with a fair amount of skepticism, with Bernstein analysts terming it more of an "aspirational" move.

Bloomberg has been even more straightforward, interpreting the robotaxi announcement as merely a hype effort to halt Tesla's declining share price.

This skepticism also stems from the fact that Tesla's FSD is currently far from perfect and still requires an average of 1 intervention per 100 miles.

Meanwhile, even Morgan Stanley's insanely bullish analysts concede that the robotaxi phenomenon is a story that will likely evolve over decades rather than months or years, given the plethora of legal and regulatory issues.

Against this backdrop, China's Uber of sorts, Didi, just announced that a joint venture between its self-driving unit and the EV manufacturer GAC Aion has received the requisite license to mass-produce robotaxis in China, with inaugural sales expected to materialize in 2025.

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