SHANGHAI -- It is an ill wind that blows nobody any good. The U.S. trade war has sapped the Chinese economy, dampened local vehicle demand and rendered global automakers, including General Motors, unable to export China-built vehicles to the United States.
But it has worked in favor for Tesla Inc. and enabled the EV maker to start delivering locally produced vehicles in China within a year after breaking ground on a Shanghai plant.
Tesla CEO Elon Musk arrived in Shanghai on Tuesday for a ceremony at the plant to mark the beginning of vehicle deliveries. Speaking at the event, he first thanked the Chinese government for helping the company set a record of building a car plant and launching full operation in just 357 days.
To be fair, he should also thank Donald Trump.
The U.S. president, known for his penchant for protectionist trade and investment policies, may not be happy to see Tesla build a $2 billion plant in China. But it was his tariff war that prompted Beijing to remove a critical regulatory barrier for Tesla’s Shanghai plant.
Before 2018, Musk started looking to build Tesla models in China, and he wanted the vehicles to be produced at a plant wholly owned by the company.
But Beijing required that foreign companies seeking to produce in China must establish joint ventures with local peers.
In March 2018, after imposing tariffs on steel and aluminum imports from China and some other countries, Trump tweeted that he also asked Beijing to cut China’s trade surplus with the U.S. Musk, responding to the president in a tweet, complained about restrictive Chinese policy on foreign automakers.
Chinese government officials apparently took notice of Musk’s complaint.
To avoid a full-blown trade war with the U.S., Beijing pledged in April 2018 to lift restrictions on foreign EV manufacturers and allow international automakers to gain control of Chinese joint ventures over the next few years.
In July, Tesla became the first foreign EV maker permitted to operate a wholly owned production subsidiary in China.
The preferential treatment from the Chinese government may have exceeded Musk’s expectations.
Despite Beijing’s move to deregulate control of the domestic auto industry, Trump was not pleased and kept expanding the range of Chinese products subject to hefty U.S. tariffs.
With exports to the U.S. tanking, China’s economic growth started to lose speed in mid-2019. To revive the economy, Beijing has stepped up efforts to attract foreign investment.
Tesla’s Shanghai plant was selected by the Chinese government as an exemplary project to demonstrate its friendliness to foreign businesses.
An automaker normally would need a year and a half to clear regulatory procedures for a new assembly plant. It took Tesla five months in 2018 to get the go-ahead for construction of the Shanghai plant.
In March 2019, Beijing mobilized three state-owned banks and a bank controlled by the Shanghai city government to lend 3.5 billion yuan ($505 million) to cash-strapped Tesla to help fund construction.
By the end of last year, Chinese banks had collectively lent 18 billion yuan to Tesla to ensure the Shanghai plant had sufficient capital to cover investment and operating needs.
Tesla is lucky. Without Trump stirring up trade disputes or Beijing going out of its way to support it, the U.S. EV maker couldn’t have possibly cleared the regulatory hurdle to open a plant of its own in Shanghai at a blistering speed.
