Tesla Inc. might be able to drive into China, but it won't be able to ride solo.
The electric-car maker could strike an agreement as early as this week allowing it to make vehicles in China, Bloomberg News reported on Monday. That would give the U.S. company an opening into the world's largest auto market.
Just consider it another part of Tesla founder Elon Musk's worldwide domination plan. (Come on, he must have it all sketched out on the back of a paper napkin somewhere, right?)
But while Musk has blown into powerfully dug-in industries like autos, space and energy with little deference to precedent, in China he faces a different beast. He's going to have to play by the rules.
Conventional wisdom says that will mean complying with China's so-called 50-50 rule, which compels foreign carmakers to form joint ventures with local companies. If Tesla wants to build a plant in Shanghai, the most obvious choice would be a partnership with a state-owned entity like SAIC Motor Corp.
But SAIC has partnerships with Volkswagen AG and General Motors Co., and competitors have relationships with Toyota Motor Corp., Honda Motor Co. and Fiat Chrysler Automobile NV among others. It's hard to imagine Elon Musk jumping into bed with an old guard that Tesla was spawned to disrupt. Ditto for the 15 so-called startups with permits to make electric vehicles in China, most of which have ties to traditional automakers.
While there are a handful of Chinese automakers without foreign partners, such as Great Wall Motor Co., they have little to offer Tesla and it's likely Musk will try to get more creative.
The idea of China bending the rules for an American company may sound laughable, but the government has already flirted with the idea of relaxing the joint-venture ownership restriction. It's already done so for suppliers.
It's also important to consider that China might have much to gain from bringing Tesla aboard. The government is intent on increasing annual sales of electric vehicles, plug-in hybrids and fuel-cell cars 10-fold in the next decade, part of efforts to slash air pollution and oil imports. At the same time, it doesn't want to repeat its mistakes with traditional cars, where foreign partnerships made money but did little to advance automotive technology in the country, according to Jochen Siebert, managing director of JSC Automotive Consulting.
Allowing Tesla to build a factory on Chinese soil could kick-start the stronger electric-vehicle supply chain that the nation will need if it's going to turbocharge its clean-car industry. It would also create thousands of jobs and advance the government's goal of moving further up the manufacturing value chain. Musk's prowess in solar power and space, two areas China is intent on dominating, doesn't hurt either.
Which brings us back to the rule-bending. Let's say Chinese authorities are willing to strike a deal with Tesla.
Musk's company could still form a partnership; it's just that the Chinese firm wouldn't have to be a carmaker. Instead, it could be a tech company like Tencent Holdings Ltd., which already has a 5 percent stake in Tesla. Or Baidu Inc., which has been working on driverless technology that could eventually power Tesla's cars. Or Beijing CH-Auto Technology Co., which has a license to make electric vehicles but is a newcomer to the industry.
Tesla gets to produce vehicles in China. Beijing gets to proclaim it's a partnership with a local company. Tesla gets to stand guard over its intellectual property around batteries, the company's true secret sauce, but still benefits from the software or designs that a Tencent, Baidu or Beijing CH-Auto could offer. And China gets to cement its leadership in electric vehicles.
It wouldn't be the first time China changed the rules to fit its goals.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Shelly Banjo is a Bloomberg Gadfly columnist covering industrial companies and conglomerates. She previously was a reporter at Quartz and the Wall Street Journal.
Tesla already sells cars in China but because they aren't made in country, they're subject to hefty taxes that require consumers to pay 1.5 times what Americans would for the same vehicle.
Earlier this year the government said it would open up the joint venture ownership restriction "in an orderly manner," without providing a timelines.
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