China and Tesla both have a lot to gain by working together and they can each fix the others problems and weaknesses. I have written about this in a recent article, but I wanted to simplify my case. It happens to be a Tesla bull market case and is pro-China, but the point is that major global problems can be fixed and millions of lives can be saved with this alliance.
China views Elon Musk as a Steve Jobs class innovator and technologist. China views Tesla’s brand like Apples brand.
China has problems in the following priority:
1. They have a massive dependence on foreign oil. They are using 13 million barrels per day and this level is growing quickly. They importing about 9 million barrels per day and can make about 3.5 million barrels per day.
This 70% dependence on foreign oil is a huge strategic weakness. Ask Japan and Germany during World War 2, how well a country does with massive foreign oil dependence.
2. China has a massive air pollution problem. This kills 1.1 million people every year. This is an early death because of heart and lung disease. If you make everyone smoke 6 cigarettes a day including oil people, babies and asthmatics then you will increase hospitalization and deaths. The evidence of the correlation is from hundreds of studies over many decades and from the fact that when the air is worse more people go to the hospital that day and even that hour. The cause and effect is tight and immediate.
China is rapidly growing its middle class. Those middle class and affluent people are demanding cleaning air. They have coughing up black for decades and they can see their “air”. They do not need to ask a scientist what their problem is.
3. China wants more high tech jobs and they want to have more high-end products to export.
Tesla and Elon Musk have the following problems and priorities:
1. Tesla needs to produce more cars and make more money. Tesla is still facing huge financial risks because of the production levels and production problems they still have.
2. Elon Musk is driven to change the world with batteries, electric cars and his other solutions. Elon wants to make a maximum impact.
3. Elon Musk can come up with more ideas, than he can build. Tesla has had problems scaling up and building all the new products that Elon Musk wants to make.
These interests align with electric cars and batteries.
However, I am going mostly to skip over the important and profitable question of electric cars.
Elon, Tesla and China both win if the first Gigafactory in China is completed in 6 months and reaches maximum 500,000 car per year production within 2-3 years. China has the production capability to help Tesla ensures this happens. Tesla would have worries about production problems go away if this happens.
Tesla Semi Would be Huge for Both
The Tesla Semi is the most important product for both of them. China has the most trucks in the world. China has over half of the world’s trucks. They have about 22 million and they are buying 1.3 million big trucks and another 1 million smaller trucks. Big trucks use 40 times the fuel as a passenger car. All China’s big trucks have about half of overall air pollution and 70% of the particulates. Particulate pollution is the main cause of the deaths.
Making 40-80 Gigafactories would require the staffing level of Foxconn. Foxconn make the iPhones and iPads. The production in China for Apple products supplies the world.
Making the factories and supply chain is exactly the kind of things that China excels at. Need to drain a lake or make massive amounts of lithium, then China can do it and will literally level mountains to make it happen.
Batteries for the Grid
Tesla Powerwall batteries and utility scale batteries can be used to modernize China’s powergrid. They would fit in even with China’s pumped hydro.
These solutions at scale means China uses 3-4 million barrels per day less oil. This is like doubling domestic oil production. It reduces oil dependence towards 50% foreign. Initially, it will mean more coal usage to supply the electricity.
The electricity will be produced around Mongolia and then sent to the cities via 1.1 megavolt power grid connections. China has ultra-high voltage cross country lines. Those lines can transmit 200GW of power. Building more as needed is not a problem.
The air pollution reduction keeps the middle class, affluent the poor people happy.
Elon Musk becomes a trillionaire and Tesla stock goes up 10X or 20X.
There will be China copycat companies but Tesla will get a huge chunk.
Support for a US technology company without directly forcing technology transfer would be a huge win.
The Chinese companies will have to achieve technology transfer the traditional way by poaching employees and waiting the one-year non-competes to expire.