SHANGHAI — With billionaire tech executive Elon Musk busy upending the U.S. government with deep cuts as the Trump administration slashes the federal workforce, one of the companies that helped him build his fortune has reached a new milestone in China.
Musk’s electric vehicle maker Tesla now has two facilities in Shanghai. Along with the nearby Gigafactory, Tesla’s first production center outside the United States, the new $200 million Megapack battery plant that opened last month is critical to Musk’s continued success in China and beyond.
The Gigafactory produces 1 out of every 2 Teslas in the world, or about 1 million cars a year. In addition to producing for the Chinese market, it exports cars to Europe and other parts of Asia, though not yet to the U.S.
Musk’s cars have been credited with helping China to create an EV industry that now leads the world. In exchange, China has become Tesla’s biggest market outside the U.S.
“China is absolutely central to the success story of Tesla globally,” said Michael Dunne, chief executive of the San Diego-based advisory service Dunne Insights. “Take China out of the picture, we have a completely different Tesla.”
That is exactly the problem.
Through Musk’s work with his Department of Government Efficiency, or DOGE, he has gained tremendous sway over the U.S. government, even as he retains substantial financial interests in China, which the U.S. considers its main strategic competitor.
With his role as a Trump adviser and his high profile in China, where he has met with senior leaders including the foreign minister, Musk has been held up as a potential bridge between the world’s two biggest economies. But it remains unclear to whose advantage that will be.
“It would be very striking and unlikely if Beijing doesn’t see this as a great gift,” said Isaac Stone Fish, chief executive of Strategy Risks, a research firm based in New York.
“Beijing is long used to using what it calls friends, the technical Chinese term for ‘useful idiots,’ for folks who can advance the interests of the Communist Party,” Stone Fish said. “Beijing is very used to using people like Elon Musk to do that.”
Though Musk is widely admired in China as an innovator and businessman, his fortunes here could also shift rapidly if U.S.-China relations sour and the public begins to associate him more with Trump administration policies.
The White House, DOGE and Tesla did not respond to requests for comment.
The White House has said Musk’s cost-cutting initiative is unrelated to U.S. foreign policy, while the Chinese Embassy in Washington says the U.S. business community has long been a “staunch force” for U.S.-China relations.
“We welcome American companies to continue investing and developing in China, playing an active role as a bridge and contribute to a stable, sound and sustainable China-U.S. relationship,” embassy spokesperson Liu Pengyu said in a statement.
A crucial market
Musk broke ground on the Gigafactory in January 2019, making Tesla the first foreign carmaker to set up a factory in China without a Chinese partner.
Ten months later, the factory was up and running in what businesspeople here like to call “China speed.”
China now accounts for more than a third of Tesla’s global sales, with more than 657,000 vehicles sold here last year. As of June, Tesla had 520 stores across the country.
Tesla’s Shanghai Gigafactory in 2023.
As a testament to the importance of the China market, a revamped version of Tesla’s Model Y was launched here in January before the U.S.
To keep his business strong, experts say, Musk needs support from the Chinese government.
“It’s hard for most people who have not lived inside China to understand the power of regulators,” Dunne said. “You apply for a license in the United States or Europe, eventually you’re going to get a permit or license. In China, it’s a massive negotiation.”
As Tesla faces intensifying competition from Chinese EV makers, it rolled out a software update last month meant to closely mimic its full self-driving features in the U.S.
Tesla’s FSD software has yet to be approved in China.
That’s why it’s vital for Musk to stay in Beijing’s good graces, especially as his companies face backlash in the U.S., Europe and elsewhere over his work for the Trump administration.
“Beijing could decide to ban Tesla. They could subject Tesla to all sorts of investigations domestically,” Stone Fish said. “There’s almost no limit to what they could decide to do.”
That may explain why even as Musk has been vocal in his opinions on politics in countries as varied as Germany, Canada and Brazil, he has been relatively quiet about what goes on in Beijing.
“Musk is so incredibly gentle when it comes to China. It’s stunning,” Stone Fish said.
Tesla workers on a street near the Shanghai Gigafactory last month.
“He’s been so much weaker than even Chinese entrepreneurs on his unwillingness to criticize China or to say anything that could be construed as negative towards the party,” he said.
Musk has opposed U.S. tariffs on Chinese EVs, after initially supporting them.
“Neither Tesla nor I asked for these tariffs,” he told CNBC at a Paris tech conference in May after President Joe Biden announced a 100% tariff on Chinese-made EV imports. (The U.S. EV tariffs do not apply to Tesla because none of the cars it makes in China are sold in the U.S.)
Musk has also made favorable comments about China’s position on Taiwan, a self-governing island democracy that Beijing claims as its territory and says it is determined to gain control of even if it means using force.
“There is some inevitability to the situation,” he told CNBC in 2023.
Such comments have been praised by Chinese officials and condemned by Taiwan, which rejects Beijing’s sovereignty claims.
Some believe Musk’s warm relations with the Chinese government could be a boon for U.S.-China ties.
“Elon Musk can play some positive, constructive, even linkage role to connect China and the U.S. during this difficult time, particularly to deal with Trump,” said Wang Yiwei, director of the Institute of International Affairs at Renmin University of China in Beijing.
Others see more potential risk than reward, including U.S. lawmakers. Last month, the Republican and Democratic leaders of the House select committee on China warned that Beijing could try to use Musk to coax Trump toward more favorable policies.
“I do believe that the CCP will try and leverage any opportunity,” Rep. John Moolenaar, R-Mich., chairman of the committee, said at a Brookings Institution event in Washington last month.
“Are people going to be looking for that? And make sure that his lane is one that is not influencing China policy? I believe that is the case,” he said.
Rep. Raja Krishnamoorthi, D-Ill., the committee’s ranking member, said Chinese authorities “absolutely” see Musk “as an asset to them in any kind of negotiations,” a way to bypass Trump administration officials seen as less friendly to China such as Secretary of State Marco Rubio and national security adviser Mike Waltz.
“My hope is that the president is going to be listening to everybody very carefully,” Krishnamoorthi said at the same event.
Even Musk’s Chinese employees have doubts about Musk’s growing role in Washington.
“As a businessman, he should focus on the business,” said one Tesla factory worker in Shanghai who declined to be named for fear of reprisal. “After all, government affairs should be handled by the professionals.”
Eunice Yoon reported from Shanghai, and Jennifer Jett reported from Hong Kong.
This article was originally published on NBCNews.com
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