Elon Musk appears to be close to deploying Tesla’s “fully autonomous driving system” in the world’s largest auto market.
Musk flew out of Beijing on Monday after meeting China’s Prime Minister Li Qiang on Sunday and inking a deal with Chinese tech giant Baidu to use the group’s mapping and navigation systems. Hours earlier, a Chinese industry group said Tesla’s electric vehicles were among more than 70 cars that had been successfully tested for data security compliance.
Overall, Musk appears to have paved the way for the US company’s semi-autonomous driving technology to be introduced in China. Tesla’s share price closed 15.3 percent higher at $194.05 on Monday on reports of the Baidu deal, but remains at half its 2022 peak.
Here you can find out what the billionaire’s trip to China means for Tesla and the government in Beijing.
How much is Tesla’s Chinese registration worth?
As sales decline and competition intensifies, Tesla is increasingly talking about the commercial opportunities presented by its self-driving technology.
“Putting everything to the test when it comes to autonomy is a completely obvious move,” Musk wrote on his social media platform X this month.
Tom Narayan, an analyst at RBC Capital Markets, said autonomous driving revenue made up a fifth of his share price target for Tesla. The automaker is charging U.S. drivers $99 a month to activate “full autonomous driving,” a partially autonomous system that supposedly chauffeurs the driver but still requires drivers to pay attention.
Allowing it to offer the same service in China, where the company has about 1.6 million cars on the road, “would unlock a significant fleet of Tesla vehicles that can charge subscription fees,” Narayan said.
The move into China would also “further propel Tesla to become an industry standard for software,” he added, and encourage other automakers to license its technology.
Dan Ives, an analyst at Wedbush, said Musk’s trip led to the “long-awaited FSD approval,” marking a “watershed moment” for the company. Tesla’s long-term valuation “depends” on autonomy revenue, he said, and China has been a “missing piece of the puzzle.”
“This is a pivotal moment for Musk and Beijing at a time when Tesla faces massive domestic competition in electric vehicles and weaker demand in China,” he added.
Will new technologies cause a turnaround and slow Tesla’s sales growth?
Tesla is placing great emphasis on globalizing its self-driving technology as its core electric vehicle offering ages compared to newer products from its Chinese rivals.
While arch-rival BYD aims to bring cars to market within 18 months of conception, it has been four years since Tesla launched the Model Y, its best-selling car. The company announced the Roadster sports car in 2017, but has not yet started production.
Musk promised last week that a new, cheaper model would come to market next year. But even though a “refreshed” Model 3 goes into production this year, the company still maintains a product offering that’s significantly older than its competitors.
“The Tesla lineup looks pretty old,” said a former Tesla executive. “The [battery] The technology is okay, but there are others, especially the Chinese, that are probably better. The question [if he deploys FSD]How long will he still have a technological advantage?”
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The expansion in China will be a test of how Tesla’s self-driving technology compares to local rivals. “You bet it’s the technology that makes a purchasing decision,” the former executive said.
However, it is not clear how confident consumers outside of urban areas are in the technology. “FSD works in Silicon Valley, but not in Illinois,” the former executive added. “For the mass market, it’s still witchcraft.”
Why is it important for China to help Tesla?
Many experts believe that China under President Xi Jinping has prioritized security over economic growth and the independence of domestic technology over integration with the outside world.
Angela Zhang, a law professor at the University of Hong Kong and author of two books on Chinese technology regulation, said there were signs that Beijing was “relaxing” its approach as it needed foreign investment to support an economy in “deep trouble.” .
Chinese electric vehicle makers want to dominate global markets and Beijing has a “strong incentive” to show the world that data security issues are not a barrier to international trade in Chinese electric vehicles, she said.
Feng Chucheng, a partner at China-focused Hutong Research, said approving Tesla’s self-driving technology had “strategic value” for Beijing.
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The Cyberspace Administration of China has been implementing a comprehensive legal framework for companies’ data collection and use for several years, with strict rules on cross-border data flows and data deemed to pose a risk to Chinese security or citizens.
Despite Western concerns about “excessive securitization,” recent developments in China’s data rules have tended to be “growth-enhancing,” Feng said. Beijing has aligned its outbound data transfer rules with CPTPP and DEPA, two key regional trade agreements.
“Tesla’s rollout in China will be highly desirable for Beijing to demonstrate that its data regulation regime is gaining traction,” he said.
Can Tesla recapture the Chinese market?
China is Tesla’s largest market outside the US, a key part of the supply chain for its electric vehicles and of growing importance as a regional export hub. Musk’s decision in 2018 to build a multi-billion dollar factory in Shanghai is seen as a precursor to the rapid growth of China’s electric vehicle industry.
But since then, the Chinese electric vehicle industry has made rapid progress. Tesla’s share of new electric vehicle sales is 7.5 percent, compared to 33 percent for Warren Buffett-backed BYD. A major complaint from Chinese consumers has been the lack of new Tesla models and high-tech features.
Despite Monday’s share price jump, analysts in China expressed caution.
Tom Nunlist, an expert on Chinese technology regulation at Beijing-based consultancy Trivium, said China’s regulatory environment is “still emerging.” “The people who monitor the safety of automated driving on highways are highly professional. For this reason, they will not relax their standards [Musk’s visit],” he said.
Tu Le, founder of consultancy Sino Auto Insights, said local rivals such as Xpeng, Nio and Li Auto have their own self-driving systems and would lower their prices “once they believe consumers prefer Tesla’s technology.” “Western analysts assume Tesla will automatically win,” he said. “There are no guarantees.”