Opinion | Sino-US cooperation could shake up the auto industry

By Augustus K. Yeung

Introduction

This article shows the beauty of Sino-US cooperation in the making of electric vehicles: The Chinese may have the expert car mechanics, but the United States excels in creative car designs, complementing each other's shortcomings.

It also illustrates how best the two nations can build better Sino-US bilateral relations: In this article, Mr. Musk shows his superb human relations skill in being verbally supportive of the CPC, earning China's trust, extraordinary cooperation--and even enviable support.

This proves that the "capitalist" and the "socialist" can cooperate and coexist beautifully in their joint business "adventures", setting an excellent example or building a "business model" for corporate leaders and leaders of foreign countries.

(Why harp on provocative "human rights" political issues, and not focus on joint business enterprises?)

Mr. Liu Built Machines to Help Factories and Tesla

Forty-two years ago, Liu Siong Song built machines to help factories make cheap toys and watches. Then he made them for motorcycle companies.

Now he helps Tesla, in the words of Elon Musk, "make full-size cars in the same way that toy cars are made."

Mr. Liu, 69, may play a role in the future of driving. His company is one of the emerging Chinese manufacturers competing aggressively and competently with traditional players in the United States and Germany economic heft and international credibility," writes Li Yuan, reporting for the Times. ("Tesla shows China a new way to make electric cars". The New York Times. Thursday, December 2, 2021.)

Tesla is Forming Stronger Ties with China

"Electric cars could shake up the auto industry—and, by extension, jobs, technology and geopolitical influences. Think of how names like General Motors and Volkswagen have given the United States and Germany economic heft and international credibility."

China is poised to become a major player in electric cars, and Tesla and several Chinese electric vehicle upstarts have been helping its companies become even more competitive. Tesla's huge factory in Shanghai works with local suppliers to make increasingly sophisticated components that are helping them go head-to-head with Western and Japanese auto suppliers.

The way Tesla makes cars has "created great pressure on traditional automakers," Mr. Liu said. "They have all realized how serious the situation is and are transitioning to new-energy vehicles." Electric vehicles are central to the Biden administration's push for clean energy and a revival of American manufacturing. But as Apple did with gadgets, Tesla is forming stronger ties with China to get closer to its adroit manufacturing supply chain and its huge market of car buyers.

How Has the Chinese Government Embraced Tesla?

"China is overtaking its competitors by switching lanes in the car race," said Patrick Cheng, chief executive of Nav-Info, a mapping and autonomous driving technology company in Beijing. "The race used to be about internal combustion engine vehicles. Now it's the electric cars."

One hears the word "overtaking" a lot in the Chinese auto industry. Many of its executives and engineers believe that the transition to new-energy vehicles presents a similar opportunity to mobile internet in the last decade.

The Chinese government has embraced Tesla with open arms: It has offered Mr. Musk's company cheap land, loans, tax benefits and subsidies. It even allowed Tesla to run its own plant--without a local partner, a first for a foreign automaker in China.

It's also big business for Chinese suppliers. Tesla said its Shanghai factory bought 86 percent of outsourced Model 3 and Model Y components within China in the fourth quarter of 2020, compared with 73 percent for Tesla cars made in its California factory.

If Tesla didn't invest in China, will its share prices rise so much?

Tesla's stock price has more than doubled over the past year as its production capacity has grown, valuing the company at about $1trillion. Its China strategy has played a role, said James Li, an analyst who follows machinery stocks in Beijing. "If Tesla didn't build a factory in China, will its share prices rise so much: Will its earnings improved so much?" he said. "Not necessarily."

Stocks of Chinese suppliers for Tesla and other electric vehicle makers have become star performers, too. The share price of the listed arm of Mr. Liu's casting machine manufacturer, LK Group, has increased about ninefold this year!

Tesla commissioned what it called the world's largest casting machines from LK in 2019. The machines, which Mr. Musk described as about the size of a small house, can make the rear body of a car consisting of a single piece, reducing the number of individual components and costs.

In addition to Tesla, LK will supply similar giant casting machines to six Chinese companies by early 2022--as more automakers adopt Tesla's way of making cars, Mr. Liu said.

He said Tesla's goal of making 20 million cars per year was ambitious but "not unattainable" because it had simplified the manufacturing process. G.M. sold 6.8 million vehicles in 2020 while Tesla delivered half a million cars.

Tesla Could Help Chinese Electric Vehicle Makers

By changing the way cars are made, Tesla could do for Chinese electric vehicle makers what Apply did for the country's smartphone industry. Many Chinese suppliers for the iPhone began working with local brands, helping them making better phones. Now Huawei, Xiaomi and Vivo phones are popular in Europe, India, Southeast Asian and Africa, if not the United States.

Cars will be harder. Tesla builds a lot of manufacturing technology on its own, so Chinese brands may find it difficult to copy Tesla by working with its suppliers. "We would like to outsource less."

More broadly, Chinese electric carmakers and their suppliers need foreign-made chips and other know-how. The Chinese auto industry is the world's largest, making about 25 million cars a year, but the popular ones are brands like Toyota and Chevrolet, and local brands haven't yet caught on abroad.

And Tesla's warm relationship with the Chinese government could sour. Tesla has experienced some reputational and regulatory challenges in the country this year. Mr. Musk has been busy mending the relationship--by speaking positively about China.

An Exquisite Example of Sino-US Cooperation

When the Chinese Communist Party marked its 100th anniversary in July, Mr. Musk said on Twitter: "The economic prosperity that China has achieved is truly amazing, especially in infrastructure! I encourage people to visit and see for themselves."

Then, at a conference hosted by China's internet regulator in September, Mr. Musk called China a "global leader in digitization" in a prerecorded video. In another prerecorded video for another conference earlier that month, Mr. Musk praised Chinese automakers as the "most competitive in the world.

For all China's progress, it still has a long way to go. LK hopes to deliver the same types of casting machines to many Chinese companies in the next two years. But some of those companies are struggling to find car designers of the type and talent that Tesla has aplenty. Without the designs, LK can't deliver the machines.

"Many Chinese automakers are talking to us about building the machines, but the majority of them are still in the design process," Mr. Liu said. "We have a bottleneck in designers in China." ("How Tesla is making Chinese carmakers more competitive". The New York Times. Thursday, December 2, 2021.)

Conclusion

This success story of Tesla in China illustrates that full cooperation between Americans and Chinese in the futuristic electric vehicles industry can shape the future of mankind by effectively reducing carbon emission, increasing good will, and toning down the hot topic of Cold War and military conflicts.

So, why politicize and not strengthen the Sino-US bilateral relations?

 

The author is a freelance writer; formerly Adjunct Lecturer, taught MBA Philosophy of Management, and International Strategy, and online columnist of 3-D Corner (HKU SPACE), University of Hong Kong.

The views do not necessarily reflect those of DotDotNews.

Read more articles by Augustus K. Yeung:

Opinion | America, China and the Great Battery War

Opinion | Lu Kang, another new generation of Chinese diplomats