Why Tesla's Full Self-Driving rollout in China matters

BEIJING -- Tesla CEO Elon Musk arrived in Beijing on Sunday on an unannounced visit, where he was expected to discuss the rollout of Full Self-Driving (FSD) software and permission to transfer data overseas, according to a person with knowledge of the matter.

Chinese state media reported that he met Premier Li Qiang in Beijing but did not say what they discussed. Musk posted a photo of himself with Li on his social media platform X, saying "Honored to meet with Premier Li Qiang."

The U.S. automaker cleared some key regulatory hurdles that have long hindered it from fully rolling out the FSD software in China, paving the way for a favourable result from his visit.

What is FSD?

Tesla calls its driver assistant features Autopilot or FSD but says they do not make its vehicles autonomous and they require active driver supervision.

FSD is the most autonomous version of Autopilot software and was rolled out in 2020. Its features include self-parking, auto lane changes and traffic navigations.

Musk has long touted the FSD technology as a potential cash cow for the company but has failed to keep his promise of a fully autonomous driving experience, amid stiff regulatory and legal scrutiny of Tesla's safety and marketing.

U.S. auto safety regulators said last week they had opened an investigation into whether Tesla's recall in December of more than 2 million vehicles in the U.S. to install new Autopilot safeguards was adequate following a series of crashes.

In 2023, Musk said the price of FSD, then at $15,000, was very low, saying the value of the car would increase dramatically if it became autonomous.

Earlier this month, Tesla slashed the price of FSD to $8,000 from $12,000 in the U.S.

FSD is also available through subscriptions, on which Tesla recently cut the monthly price to $99 in the U.S. and C$99 ($72.52) in Canada to spur its adoption amid softening EV sales and intensifying price competition.

Why is FSD only available on a limited basis in China?

Tesla has been offering FSD for subscription in China for four years but with a restricted set of features that limit the system to operations like automated lane changing.

Data security issues have been a key obstacle to a full rollout. Musk is looking to obtain official approval to transfer data collected in the country abroad to train algorithms for its autonomous driving technologies, according to the person with the knowledge of the matter.

Since 2021, Tesla has stored all data collected by its Chinese fleet in the country, as required by Chinese regulators, and has not transferred any back to the U.S.

In a sign of progress that may lead to a launch of unrestricted FSD in China, Tesla's Model Y and 3 cars made it onto a top Chinese auto association's list of 76 car models found to be compliant with China's data security requirements.

It remains unclear as to what, if any, other regulatory approvals Tesla will need to obtain or what conditions the company may have before it is able to make FSD fully available in China.

What would an FSD rollout in China mean for Tesla?

The rollout of FSD in China would allow Tesla to better compete with local rivals in the world's largest auto market where driver assistance and other connected car features are prized.

Tesla has sold more than 1.7 million cars in China since it entered the market a decade ago and its Shanghai factory is its largest globally.

A rollout of unlimited FSD could turn the Chinese market into a battlefield for cheaper driver assistance features, intensifying a price war that Tesla triggered early last year which has pulled in more than 40 brands in the country.

FSD's entry into the China market will complement offerings of similar software by local automakers.

Smartphone maker Xiaomi, for instance, announced plans for the availability of its Navigate on Autopilot (NOA) driver assistance feature on its first car SU7 at the Beijing auto show.

Enabling FSD in China would provide a buffer to Tesla's declining EV sales by accelerating its diversification towards autonomous technologies, artificial intelligence and humanoid robots and operating a fleet of millions of autonomous vehicles.

Tesla's vehicle deliveries in the first quarter fell for the first time in nearly four years. The company began the second quarter announcing cuts to more than 10 percent of its global workforce and slashed vehicle prices in major markets including the U.S., China and Europe.

What might an FSD rollout mean for China?

Beijing's warm reception of Musk and a potential approval for FSD comes as China's leaders are grappling with souring foreign investment sentiment towards China, with overseas businesses complaining regulatory tightening over areas such as data have left them confused and concerned.

China has signaled it wants to improve the situation, having last month relaxed rules to facilitate and regulate cross-border data flows and allowing free trade pilot zones to independently formulate lists of data that need to undergo security assessments.

Tesla's China factory is located in a large Shanghai free trade zone.

Li's meeting with Musk contrasted with the Chinese premier's decision not to hold a meeting with visiting foreign CEOs at a key annual Beijing forum last month, which had raised concerns about China's commitment to attracting investment from abroad.

Approval of Tesla's FSD would also fit with Chinese authorities' aim to spur competition and innovation to preserve the country's leading edge in such technologies. Several Chinese automakers and suppliers such as XPeng and Huawei are rolling out similar software to Tesla.