Elon Musk's latest gamble

Elon Musk is back in the news.  It's not for drug use or space shots.  It's that Tesla has just broken ground to construct a massive factory in China on a 210-acre plot.  When up to speed, this facility is expected to produce 500,000 electric vehicles (E.V.s) annually.  This, by the way, will be the first wholly foreign-owner car plant allowed in Red China. 

Bill Russo, chief executive of Shanghai-based consulting firm Automobility, says Musk's move is a gamble.  "It will take billions of dollars to build a footprint in China.  As 100% owner, this burden falls on Tesla."  Since Tesla is heavily subsidized by the U.S. and money is fungible, this burden is also indirectly partly on the back of the U.S. taxpayer.  

Musk is hoping to use his Shanghai factory as a springboard to boost Tesla from a niche startup into the automotive mainstream.  Marketing data that helped entice him to China is the reported one million E.V.s sold there last year – that is, if you can believe numbers from the Chinese government.  As for Tesla, it sold a mere 14,000 of its cars in China for the first nine months of 2018.  But those cars had to be imported from the U.S. and so were hit with the 25% Chinese tariff on vehicles.  This is why Tesla and all the global automotive companies have production facilities in China – to avoid the tariffs.

On the downside, Tesla will now be operating in a communist environment, where the reliability of the rule of law can depend on which way the breeze is blowing.  Bill Russo warns, "Chinese authorities will likely try to influence everything from how Tesla stores customer data to local supplier selections."  That's putting it mildly.  If past behavior is any indication, Tesla can expect to have its proprietary technology appropriated by China.  The Chinese are masters at stealing intellectual property when operating in a foreign country.  Imagine how good they will be in their own ballpark.

As time goes on, Musk may find that his glib tongue, which served him so well in Washington, may not get him out of difficulties with Comrade Xi if things get tough.  Having plopped a multi-billion-dollar state-of-the-art factory in China, it won't be easy to just pack up and leave.

And what is the long-term future of E.V.s, anyway?  The premise behind them is that they will reduce the emission of so-called greenhouse gas and other pollutants.  This is a dubious assertion.  As Holman Jenkins writes in the Wall Street Journal: 

However you slice it, car[s] just aren't that big a part of an ostensible CO2 problem.  Personal cars sit idle 95% of the time.  Planes, trains, ships, trucks, and buses and other commercial vehicles account for well over half the emissions associated with the transport sector globally.  And the transport sector accounts for only 14% of all emissions.

The inordinate focus on E.V.s is because cars have become a favorite whipping boy of the green movement.  A component of this is the desire by environmentalists, who are invariably leftists, to limit personal freedom and exert control over the movement of people.  Jenkins feels that E.V.s may be a passing fad, writing: "A whole generation of green activists and politicians probably will have to die away before rational priorities for limiting CO2 emissions will be discussable."  But die off they will. 

And how pollution-free are E.V.s, anyway?  In China, coal accounts for some 62 percent of the country's energy needs.  So to say electric cars will run by rechargeable batteries in China is to say they will run mostly on coal.  But what about renewables?  As Germany is now finding out, it is a costly fairy tale to think a significant part of a country's energy needs can be provided by wind and solar. 

Musk is gambling with this China venture.  He's betting that 1) costly E.V.s have a sustainable future and 2) China will continue its growth and develop into a true consumer economy.  He's trying to make four the hard way.  Many believe he'll crap out.  If so, hopefully the compromised fools in Congress don't try to bail him out with more taxpayer money. 

Elon Musk is back in the news.  It's not for drug use or space shots.  It's that Tesla has just broken ground to construct a massive factory in China on a 210-acre plot.  When up to speed, this facility is expected to produce 500,000 electric vehicles (E.V.s) annually.  This, by the way, will be the first wholly foreign-owner car plant allowed in Red China. 

Bill Russo, chief executive of Shanghai-based consulting firm Automobility, says Musk's move is a gamble.  "It will take billions of dollars to build a footprint in China.  As 100% owner, this burden falls on Tesla."  Since Tesla is heavily subsidized by the U.S. and money is fungible, this burden is also indirectly partly on the back of the U.S. taxpayer.  

Musk is hoping to use his Shanghai factory as a springboard to boost Tesla from a niche startup into the automotive mainstream.  Marketing data that helped entice him to China is the reported one million E.V.s sold there last year – that is, if you can believe numbers from the Chinese government.  As for Tesla, it sold a mere 14,000 of its cars in China for the first nine months of 2018.  But those cars had to be imported from the U.S. and so were hit with the 25% Chinese tariff on vehicles.  This is why Tesla and all the global automotive companies have production facilities in China – to avoid the tariffs.

On the downside, Tesla will now be operating in a communist environment, where the reliability of the rule of law can depend on which way the breeze is blowing.  Bill Russo warns, "Chinese authorities will likely try to influence everything from how Tesla stores customer data to local supplier selections."  That's putting it mildly.  If past behavior is any indication, Tesla can expect to have its proprietary technology appropriated by China.  The Chinese are masters at stealing intellectual property when operating in a foreign country.  Imagine how good they will be in their own ballpark.

As time goes on, Musk may find that his glib tongue, which served him so well in Washington, may not get him out of difficulties with Comrade Xi if things get tough.  Having plopped a multi-billion-dollar state-of-the-art factory in China, it won't be easy to just pack up and leave.

And what is the long-term future of E.V.s, anyway?  The premise behind them is that they will reduce the emission of so-called greenhouse gas and other pollutants.  This is a dubious assertion.  As Holman Jenkins writes in the Wall Street Journal: 

However you slice it, car[s] just aren't that big a part of an ostensible CO2 problem.  Personal cars sit idle 95% of the time.  Planes, trains, ships, trucks, and buses and other commercial vehicles account for well over half the emissions associated with the transport sector globally.  And the transport sector accounts for only 14% of all emissions.

The inordinate focus on E.V.s is because cars have become a favorite whipping boy of the green movement.  A component of this is the desire by environmentalists, who are invariably leftists, to limit personal freedom and exert control over the movement of people.  Jenkins feels that E.V.s may be a passing fad, writing: "A whole generation of green activists and politicians probably will have to die away before rational priorities for limiting CO2 emissions will be discussable."  But die off they will. 

And how pollution-free are E.V.s, anyway?  In China, coal accounts for some 62 percent of the country's energy needs.  So to say electric cars will run by rechargeable batteries in China is to say they will run mostly on coal.  But what about renewables?  As Germany is now finding out, it is a costly fairy tale to think a significant part of a country's energy needs can be provided by wind and solar. 

Musk is gambling with this China venture.  He's betting that 1) costly E.V.s have a sustainable future and 2) China will continue its growth and develop into a true consumer economy.  He's trying to make four the hard way.  Many believe he'll crap out.  If so, hopefully the compromised fools in Congress don't try to bail him out with more taxpayer money.