Elon Musk’s China visit pays off for Tesla

With more than 100 EV manufacturers in China operating within as market where there is weak consumer demand and where the industry’s plants are operating at less than 65 per cent of their capacity, there have been rounds of price reductions from the major manufacturers, Tesla included.

The breakthrough in China, if confirmed, would be a major moment for Tesla and not just because it might be able to sell more EVs and generate higher-margin income in China.

Musk has signalled Tesla is close to rolling out its much-vaunted (and much delayed) robotaxi, with an announced scheduled for early August. While, again, the vehicles will be semi-autonomous, requiring driver supervision, they are expected to incorporate the latest AI-driven software.

AI models require access to massive amounts of data to be trained. Tesla, having sold nearly two million EVs in China, has a lot of data stored within the data centre it built in Shanghai three years ago and would collect more and more valuable data if it can roll out its FSD software.

It has applied to be able to transfer that data out of China to the US so that it can create a big pool of data and one enriched by the more complex nature of China’s transport mix to train its models.

With China regarding data protection as a national security issue (as is increasingly the case in other jurisdictions) that is a big ask, but one that could, with the $US10 billion a year Musk has said Tesla will spend on AI, give the company a competitive advantage.

If Tesla doesn’t gain approval to transfer the data, there are suggestions that it might pool and process its data within China with Baidu, which has its own fleet of robotaxis. Tesla and Baidu have had a relationship – Baidu has been supplying Tesla with mapping data, albeit not at the lane level – since 2020.

For much of this year Tesla shares have been languishing, with the share price falling by more than 40 per cent since the start of the year ahead of last week’s quarterly results.

The result was, as expected, dreadful – earnings more than halved – but Musk turned the trajectory of the share price around by announcing that, not only was Tesla committed to the launch of its robotaxis, but it planned to add a new cheaper model to its existing line up as early as next year, using existing production facilities and EV platforms. It was the latter that got the market excited.

The dash to China and the apparent success of Tesla’s efforts to gain clearance for its FSD technology has had an even bigger impact.

Tesla shares soared more than 15 per cent on the news. Since it’s pre-results low, Tesla’s market capitalisation has jumped $US166.4 billion, to nearly $US619 billion, recovering more than $US37 billion of Musk’s own net worth in the process.

While the breakthroughs in China have been described as “game changers” for the company, competition in that market is formidable, with formidable competitors that are already operating highly sophisticated semi-autonomous fleets of robotaxis.

The breakthrough in China, if confirmed, would be a major moment for Tesla and not just because it might be able to sell more EVs and generate higher-margin income in China.

Regulators in China don’t seem quite as focused on safety issues as their US and European counterparts (on Friday the US transport safety regulator launched yet another investigation into Tesla’s previous generation of software, its Autopilot driver assistance system), which should make it easier for Tesla to make its FSD packages available quite widely and quickly once a formal clearance is achieved.

FSD pricing has been trending down. Initially, it cost $US15,000, which was then cut to $US12,000 and, quite recently, to $US8000, with a subscription alternative of $US99 a month.

In a market, and not just in China, that is oversupplied and price-driven, it could be that AI-driven software provides the profit margin and competitive advantage, or at least no disadvantage.

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Certainly Musk sees Tesla as far more of a technology company than an auto manufacturer and says that anyone spending less than Tesla’s planned $US10 billion on AI won’t be able to compete.

It’s part of China’s five-year plan, of course, to dominate both AI and the EV sector and its has been providing massive subsidies and incentives to Chinese companies, including its EV sector, as part of that strategy.

It may see Tesla’s presence within China as helpful, given the prospect of a data-sharing relationship with Baidu and that Musk has said Tesla, the West’s flag bearer for EVs, is prepared to licence its autonomous driving software to third parties.

Whatever the motivation for the apparent clearing of the pathway to enable Tesla to bring its technology to bear on China’s domestic market, the sharemarket, at least, seems convinced that it will help turn around the group’s flagging fortunes and provide a key building block for Musk’s long-held vision of a truly autonomous driving future.

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