Renewed political tensions between the U.S. and China — which came to light this week as the Biden administration sat down with their Chinese counterparts for the first time to discuss a range of issues — could ensnarl vehicle maker Tesla (TSLA), which has pushed successfully into China in recent years.
In fact, the heightened rhetoric between the two super economic superpowers may have already had blowback on Elon Musk’s electric car company.
The Chinese government is restricting the use of Tesla vehicles by military staff and employees of vital state-owned companies, The Wall Street Journal reported Friday. Chinese officials reportedly have concerns that Tesla’s cars — outfitted with various data collecting capabilities — could serve as leakers of national security secrets.
“I have been saying for months now that Tesla’s level of integration of their business, of their research, of their sort of geo-tracking for which there is integration with Chinese maps, their development of A.I. with Chinese firms, and electric battery technology that’s not sustainable in China given the trajectory [on policy] that we are now on,” policy expert and Eurasia Group founder Ian Bremmer said on Yahoo Finance Live. “Most American A.I. and technology companies are seen as critical for national security, they don’t have access in China — companies like Amazon, Google and Facebook. Tesla is the outlier.”
That outlier status has made China an incredibly important market for Tesla, and a key part of the investment thesis in the stock.
Tesla’s sales in China clocked in at $6.66 billion in 2020, up 123% from a year earlier powered by strength in the Model 3. The business made up about 21% of Tesla’s overall 2020 sales. Tesla began deliveries of its China-made Model Y to Chinese consumers earlier this year.
Bremmer warns Tesla now has a challenging road ahead in China in light of the recent development by the military. Musk’s response to the Chinese actions are important for investors to watch, suggests Bremmer.
“At a moment of some white knuckle tensions between the U.S. and China, Musk & Co. find themselves in a unique position (along with Apple) of being caught in the crossfire,” Wedbush tech analyst Dan Ives said.
Tesla shares fell about 2% on the report, as investors pondered if China will take a harder line on Tesla’s sales to consumers.
“One thing we know about Elon Musk is that he is not exactly Mr. Sensitivity when it comes to government relations and how he engages with say, the S.E.C. or with Congress. I think that this is a significant challenge for him and the firm going forward,” Bremmer said.
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