How Tesla Planted the Seeds for Its Own Potential Downfall

from The New York Times I'm cine benold. this is the. [Music]. daily today the story of how China gave. Tesla a Lifeline that saved the company. and how that Lifeline has now given. China the tools to beat Tesla at its own. game my colleague Mara vist andol. explains.

it's Tuesday April. [Music]. 9th so maray you've spent the past four. months investigating Elon Musk and his. ties to China through his company Tesla. tell us why well a lot of American. companies are heavily invested in China. but Tesla's kind of special you know as. my my colleagues and I started talking.

to sources we realized that many people. felt that China played a crucial role in. rescuing the company at a critical. moment when it was on the brink of. failure and that China helps account for. Tesla's success for making it the most. valuable car company in the world today. and for making Elon Musk Ultra Rich. that's super intriguing so maybe take us.

back to the beginning when does this. story start so the story starts in the. mid-2010s Tesla had been this company. that had all this hype around it but a. lot of people were shocked by Tesla's. earnings report not only did they make a. lot less money than expected they're. also making a lot less cars Tesla was. struggling the delivery of the model 3. has been delayed yet again Tesla. Engineers are saying 40% of the parts. made at the font Factory need reworking.

at the time they made their cars in. Fremont California and they were facing. production delays Tesla is confirming. that kosha is investigating the company. over concerns over workplace safety Ela. musk has instituted a kind of famously. grueling work culture at the factory and. that did not go over well with. California labor law the federal. government now has four active. investigations involved Tesla they were.

clashing with Regulators say the. national Transportation safety board. will investigate a second crash. involving Tesla's autopilot system. billionaire entrepreneur Elon Musk. friends are really concerned about him. that's what musk told the New York Times. and by 2018 I mean he was having all of. these crises according to the times musk. choked up multiple times and struggled. to maintain his composure during an. hour-long interview about turmoil at his. electric car company Tesla so all of. this kind of.

converged to put immense pressure on him. to do. something and where does China come in. well setting up a factory in China in a. way would solve some of these problems. for musk you know labor costs were lower. workers couldn't unionize there China. provided access to this steady supply of. Cheaper parts so Elon Musk was set on. going to China but first Tesla and musk.

wanted to change a key policy in China. hm what kind of policy so they wanted. China to adopt a policy that was aimed. at lowering car emissions and the idea. was that it would be modeled after a. similar policy in California that had. benefited Tesla there okay so explain. what that policy actually did and how. did it benefit Tesla so California had. this system called the zero emission.

vehicle program and that was designed to. encourage companies to make cleaner cars. including electric vehicles and they did. that by setting pollution targets so. companies that made a lot of clean cars. got credits and then companies that. failed to meet those targets that. produce too many gas guzzling cars would. have to buy credits from the cleaner. company companies so California is.

trying to incentivize companies to make. cleaner cars by forcing the traditional. car makers to pay cleaner car makers. which basically means dirtier car makers. are effectively subsidizing cleaner cars. yes that's right and Tesla as a company. that came along just making EVS profited. immensely from this system and in its. early years when Tesla was really. struggling to stay a.

the money that it earned from selling. credits in California to polluting car. companies were absolutely crucial I mean. so much so that the company structured a. lot of its lobbying efforts around this. system around preserving these credits. and we talked to a former regulator who. said as much how much money are we. talking about here so from 2008 when. Tesla unveiled its first car up until. the end of last year Tesla made almost. $4.

billion by selling credits in California. wow so musk basically wants China to. recreate this California style program. which was incredibly lucrative for Tesla. there and they're basically holding that. up as a condition to their building a. factory in China right and you know at. this point in the story an interesting. Alliance emerges because it wasn't just. Tesla that wanted this emissions program. in China it was also environmentalist. from California who had seen the success.

of the program up close in their own. State h i mean if you go back to that. period to the early 2010s I was living. in China at the time in Beijing and. Shanghai and it was incredibly polluted. we called it air Apocalypse at times you. know I had my first child in China at. that point and as soon as it was safe to. put like a baby mask on her we we put a. little baby mask on her and we you know. there days where people just would try.

to avoid going outside because it was so. polluted and some of the pollution was. actually wafting across the Pacific. Ocean to California wow so California is. experiencing that Chinese air pollution. firsthand and in a way has a direct. stake in lowering. it that's right so Governor Jerry Brown. for example this became kind of his. signature issue was working with China. to clean up the environment part by.

exporting this submission scheme you. know it was also an era of a lot more us. China cooperation China was seen as. absolutely crucial to combating climate. change so you had all these groups. working to get this California emission. scheme exported to China and the. governor's office and environmental. groups and Tesla and it worked in 2017. China did adopt a system that was.

modeled after. California's it's pretty incredible so. California basically exports its. emissions trading system to China which. I imagine at the time was a big win for. Californian environmentalists but it was. also a big win for Tesla it was. definitely a big win for Tesla and we. know that in just a few years Tesla made. almost $1 billion from the emissions. trading Program help Lobby for in. China.

so Elon Musk goes on builds a factory in. China and he does so in. Shanghai where he builds a close. relationship with the top official in. the city who actually is now the number. two official in all of China leang wow. so according to Chinese State media Elon. Musk actually proposed building the. factory in two years which would be. fast and Lee came back and proposed that.

they do it in one year which you know. things go up really quickly in China but. even for China this is incredibly fast. and they broke ground on the factory in. January 2019 and by the end of the year. cars were rolling off the line so then. in January 2020 musk was able to get up. on stage in shangai and unveil the first. Chinese made. Teslas really want to thank you know the.

Tesla team and and the government. officials that have been really helpful. in making this happen next to him on. stage is Tesla's top lobbyist who helped. push through some of these changes thank. yeah everybody can tell I mean elan's. super super happy. today and she says music please cue the. [Applause]. music and he he actually like broke into. dance he was so happy kind of awkward.

[Applause]. dance and what is the factory like the. Shanghai Factory is huge 20,000 people. work there Tesla's factories around the. world tend to be pretty large but the. Shanghai workers work more. shifts and when Tesla set up in China. Chinese Banks ended up offering Tesla. $1.5 billion in low interest loans they. got a preferential tax rate. in Shanghai you know this deal was so.

generous that one Auto industry official. we talked to said that a government. Minister had actually lamented that they. were giving Tesla too much and it is an. incredibly productive Factory it's now. the flagship export Factory for Tesla so. it opens in late. 2019 and that's of course the time when. the pandemic hits yes I mean you might.

think that this is really poor timing. for Elon Musk but it didn't quite turn. out that way in fact Tesla's Factory in. Shanghai was closed for only around 2. weeks whereas the factory in Fremont was. closed for around two months that's a. big. difference yes and it really really. mattered to Elon Musk if you can think. back to 2020 you might recall that he. was railing against California. politicians for closing his Factory in.

China the factory stayed open workers. were working around the clock and Elon. Musk said on a podcast um China rocks in. my opinion China rocks there's like a. lot of smart hardworking people and they. really they're not entitled they're not. complacent whereas. [Music]. I we've seen a lot of momentum and. enthusiasm for electric vehicles stocks. and Tesla certainly leading the. Tesla's stock price kept going up Tesla.

has become just the fifth company to. reach a trillion doll valuation the. massive valuation happened after Tesla's. stock price hit an all-time high of more. than. $1,000 so this company that had just a. few years earlier been on the brink of. failure looking to China for a Lifeline. was suddenly Riding High and chesla is. now the most valuable car company in the. world it's worth more than General. Motors Ford Fiat crisis by the summer it.

had become the most valuable car company. in the world guess what Elon Musk is now. the world's richest fan forb says he's. worth more than. $255. billion and Elon musk's wealth is tied. up in Tesla stock and in the following. year he became the wealthiest man in the. [Music]. world so you have this emission trading. system which we discussed and which you. know in part thanks to Tesla is now.

established in China it's bringing in. money to Tesla and now this Shanghai. Factory is continuing to produce cars. for the Tesla in the middle of the. pandemic so China really paid off for. Tesla but what was in it for China well. China wasn't doing this for. charity what Chinese leaders really. wanted was to turn their fledgling. electric vehicle industry into a global.

Powerhouse and they figured that Tesla. was the ticket to get there and that's. precisely what. happened we'll be right. back so Mara you've just told us the. story of how Elon Musk used China to. turn Tesla into the biggest carmaker in.

the world and himself at one point into. the richest man in the world now I want. to understand the other side of the. story how did China use. Tesla well Tesla basically became a. catfish for China's EV industry a. catfish what do you mean by that it's a. term from the business world and you. know essentially it means a super. aggressive fish that makes the other. fish in the pond swim faster H and by.

bringing in this super competitive. aggressive foreign company into China. which at that point had these fledgling. EV companies Chinese leaders hoped to. Spur the upstart Chinese EV makers to. kind of up their game so you're saying. that at this point china actually. already had a number of smaller EV. companies which you know many people in.

the west may not even been aware of like. these smaller fish in the pond that you. were referring. to yes there were a lot of them they. were often kind of locally based like. one would be strong in one city and one. would be strong in another city and. Chinese leaders saw that they needed to. become more competitive in order to. thrive and you know China had tried for. decades to build up this traditional car. industry by bringing in foreign. companies to set up joint ventures you.

know they had really had their sight set. on building a strong car industry and it. didn't really work I mean how many. Chinese traditional Chinese car company. brands can you name exactly none yeah. right so you know going back to the As. and the. 2010s they had this advantage that many. Chinese hadn't yet been hooked on gas. guzzling cars mhm they was still many. people who were buying their first car.

ever so officials had all these levers. they could pull to try to encourage or. try to push people's behavior in a. certain direction and their idea was to. try to ensure that when people went to. buy their first car it would be an EV. and not just an EV but hopefully a. chines EV so you know they did things. like at the time just a license plate. for your car could cost. in exorbitant amount of money and be.

difficult to get and so they made. license plates for electric vehicles. free so there were all these kind of. preferential policies that were unveiled. to kind of nudge people toward buying. EVS so that's fascinating so China is. incentivizing consumers to buy EV cars. and incentivizing also the whole. industry to kind of get its act together. by you know chucking this big American. company in the mix and hoping that it.

will increase. competitiveness what I'm particularly. struck by Mara in what you said is the. sort of concept of Lea frogging over the. conventional combustion engine phase. which you know took us decades to live. through we're still living in it in many. ways in the west but listening to you it. sounds a little bit like China wasn't. really thinking about this transition to. EVS as an environmental policy it sounds. like they were doing this more from an. industrial policy. perspective right the environment and.

the horrible era at the time was a. factor but it was a pretty minor Factor. according to people who were privy to. the policy discussions the more. significant factor was industrial policy. and an interest in building up a. competitive. sphere so China now wants to become a. leader in the global EV sector and it. wants to use Tesla to get there what. does that actually look like well you. need sophisticated suppliers to make the.

component parts of an of electric. vehicles and just by being in China. Tesla helped spur the development of. several suppliers like for example the. battery is a crucial piece of any EV MH. and Tesla with a fair amount of. encouragement and also various levers. from the Chinese government became a. customer of a battery maker called catl.

a homegrown Chinese battery maker and. they have become very close to Tesla and. have even set up a factory near Tesla's. in Shanghai and today with Tesla's. business and of course with the business. of some other companies catl is the. biggest battery maker in the world wow. but beyond just stimulating the growth. of suppliers Tesla also you know made. these other fish in the Pond swim faster.

and the biggest Chinese EV company to. come out of that period is one called. byd short for build your. dreams we a byd you've probably never. heard of us from Battery maker to the. biggest electric vehicle or EV. manufacturer in China they've got a lot. of models they've got a lot of discounts. they've got a lot of market growth. China's biggest EV maker just overtook. Tesla in terms of worldwide sales be. 10 Chinese automobile.

redefined I've actually started seeing. that brand on the streets here in Europe. recently especially in Germany where you. know my brother actually used to lease a. Tesla and now Lees a byd does he like it. he does although he did to be fair say. that he misses the sort of luxury of the. Tesla um but it just became too. expensive really the price point is a. huge reason that byd is increasingly.

giving Tesla a run for its money you. know years ago back in 2011 although. there's competitors now ramping up and. as you're familiar with byd which is. also on Elon Musk actually mocked their. cars is trying to compete why do you. laugh he asked an interviewer have you. seen their car I have seen their car. have you seen their cars you know sort. of suggesting like they're no. competition for us. you don't see them at all as a.

competitor no why is that I mean they. offer a lower price. point I don't I don't think they have a. great product I I think they their focus. is and rightly should be on making sure. they don't die in China but they have. been steadily improving you know they've. been in the EV space for a while but. they really started improving a few. years ago once Tesla came on the scene. you know that was due to a number of. factors not entirely because of Tesla. but. Tesla played a role in helping train up.

talent in China One former Tesla. employee who worked at the company as. they were getting set up in China told. me that most of the employees who were. at the company at the time now work for. Chinese competitors wow you know so they. they have really played this important. role in the EV. ecosystem and you mentioned the price uh. kind of Advantage so just for comparison. like what does an average byd sell for. compared to like a more affordable Tesla.

car so byd has an ultra cheap model. called The Seagull that sells for around. $10,000 now in China whereas Tesla Model. 3s and model y's in China sell for more. than twice that wow how is byd able to. sell EVS at these much lower. prices well the seagull is really just a. simpler car. it has less range than a Tesla it lacks.

some safety measures but B has this. other crucial Advantage which is that. they're vertically integrated like they. control many aspects of the supply chain. up and down the supply chain when you. look at the battery level they make. batteries but they even own the mines. where lithium is mined for the batteries. wow and they recently launched a fleet. of ships so actually operate the boats.

that are sending their cars to Europe or. other parts of the world so byd is. basically cutting out the middleman on. all these aspects of the supply chain. and that's how they can undercut other. car makers on price yeah they've cut out. the middleman and they've cut out the. shipping company and you know almost. everything else so how is byd doing now. as a company compared to. Tesla in terms of market cap there still. much smaller than Tesla but crucially.

they overtook Tesla in sales in the last. quarter of last year wow yeah there was. a huge milestone Tesla still dominates. in the European market which is a very. important market for EVS U but byd is. starting to export there and you know. Europe is traditionally is kind of. Automotive. Powerhouse and the companies and. government officials there are very very. concerned I interviewed the French.

Finance Minister and he told me that. China has a 5 to 7year head start on. Europe when it comes to Eves wow and. what has Elon Musk said about this. incredible rise of byd in recent years. do you do you think he anticipated that. Tesla's entry into the Chinese market. could end up building up its own. competition well I can't get inside his. head and he did not respond to our. questions but but chines car companies. are the most competitive car companies.

in the world he has certainly changed. his tune you know so you know remember. he was joking about byd some years ago. yes um yeah he's he's not joking anymore. right I think they will have significant. success you know he had dismissed. Chinese EV makers he now appears. increasingly concerned about these new. competitors Frank I think if if if. they're not trade barriers established. they they will pretty much demolish. but most other call companies in the.

world to the point that on an earnings. call in January. he all but endorsed the use of trade. barriers against them they're extremely. good I think it's so interesting in in a. way of course with perfect hindsight the. kind of maybe complacency or. naivity with which he may not have. intiated this turn of events and in some. ways he's not alone right it speaks of. something larger like China for a long. time was seen as kind of the sweat shop.

or the manufacturer of the world or. perhaps as a an export market for a lot. of these Western companies it certainly. wasn't putting out its own big brand. names it was making stuff for the brand. names but recently they have quite a lot. of their own brand names I mean you know. everybody talks about Tik top there's. Huawei there is WeChat Lenovo and now. there is byd so China is becoming a. leader in technology in certain areas. and I think that shift in some ways has.

happened and a lot of Western companies. perhaps like Tesla were kind of late to. waking up to that right Tesla is looking. fragile now there stock price dropped. 30% in the first quarter of this year. and to a large degree that is because of. the threat of companies like buid from. China and you know the perception that. Tesla's position as number one in the.

market is no longer. guaranteed so Mara all this raises a. much bigger question for me which is who. is going to own the future of. EVs and based on everything you've said. so far it seems like China owns the. future of EVS is that right well. possibly but the jury is still out mhm. Tesla's still far bigger for. now but there is this increasing fear.

that China owns the future of EVS you. know if you look at the us there are. already 25% tariffs on EVS from China. there's talk of increasing them the. Commerce Department recently launched an. investigation into data collection by. electric vehicles from China you know so. all of these factors are creating. uncertainty around you know what could.

happen and the European Union may also. add new tariffs against Chinese mid cars. mhm and China is an economic rival and a. security rival and you know in many ways. our main adversary so this whole issue. is intertwined with National Security. and Tesla's really in the middle of. it right so the sort of new cold war. that people are talking about between. the US and China is in a sense the.

backdrop to the story but you know on. one level what we've been talking about. is it's really a corporate story right. an economic story that has this. geopolitical backdrop but it's also very. much an environmental story so. regardless of how Elon Musk and Tesla fa. in the end is BD's rise and its ability. to create high quality and perhaps more. importantly affordable EVS. ultimately a good thing for the world.

you know if I think back on those years. I spent living in Shanghai and Beijing. when it was extremely polluted and there. were days when you couldn't go outside I. don't think anyone wants to go back to. that so it's clear that EES are the. future and that they're crucial to the. green energy transition that we have to. make how exactly we get there is still. clear but what is true is that China did.

just make that transition. easier Mara thank you so much thank you. [Music]. krine we'll be right. back here's what else you you need to. know today oh my.

God millions of people across North. America were waiting for their turn to. experience a rare event on Monday from. [Music]. Mexico to Texas awesome just awesome we. can see the corona really well oh you. can. Illinois oh and we are Falling Into. Darkness right now what an incredible. sensation and you are hearing and seeing.

the crowd of 15,000 gathered here at sou. including daily producers in New York. like the sky is almost like a deep blue. under the clouds oh my God the sun is. disappearing and it's gone oh. who all the way up to. Canada that's what I'm talking. about the moon lighted in front of the. Sun and obscured it entirely in a total.

solar eclipse momentarily plunging the. day Into Darkness super exciting it's so. amazing to see science in action like. [Music]. [Applause]. [Music]. [Music]. this today's episode was produced by. Ricky nety and much zi with help from. Michelle bonja it was edited by Lisa.

Chow with help from Alexandra Lee Young. fact checked by Susan Lee contains. original music by Marian Lozano Diane. Wong Elicia BYU and sopia lman and was. engineered by Chris Wood our theme music. is by Jim brenberg and Ben lansberg of. [Music]. w. [Music].

[Music]. that's it for the daily I'm cine benold. see you. [Music]. tomorrow.