Tesla in China: Three Strange Days in July

In early July, Tesla made headlines when it became the only non-Chinese car maker to sign a four-point pledge at the 2023 China Automobile Forum. The pledge included an agreement to adhere to "core socialist values," a move that raised eyebrows in the global business community.

When I first saw the news alert, I was certainly surprised… but with Elon Musk, surprises are par for the course. The four points of the pledge were as follows: not engaging in "abnormal pricing," prioritizing quality, avoiding false publicity, and contributing to China's economic growth.?

China's position as a significant consumer, industrial, and raw materials market comes with complications. The nation has been criticized for using harmful environmental practices and committing human rights violations. Companies seeking to enter the Chinese market often face challenges to their intellectual property rights, requiring them to perform complex public relations and management maneuvers in exchange for growth opportunities.

On July 6th, 16 automakers came together to sign the pledge. But the story doesn’t end there.

The next day, July 7th, Tesla offered customers in China a $484 rebate/referral fee for each Model Y or Model 3 purchase. That may walk the line between “creative pricing” and “abnormal pricing,” but it was allowed to happen.

On July 8th, things got even stranger. The China Association of Auto Manufacturers (CAAM) retracted the part of the pledge about “abnormal pricing.”? Apparently, it violated Chinese antitrust law and was illegal.?

Here’s what is funny: That part of the pledge was intended to prevent activities that would disrupt fair market competition (from China’s perspective), and then it was retracted because it… disrupted fair market competition.

In 2020, Tesla became the most heavily subsidized electric vehicle maker in China. They received approximately $325 Million in government subsidies, the highest amount granted to a car manufacturer in the country.?

But still… why did Tesla sign the pledge?

Did Tesla know the pledge would be overturned? Did they maneuver behind the scenes and point out to someone that the pledge was illegal – making an act of going along with the request while ultimately getting what they wanted in the end?

Was Tesla making clear that they only signed the pledge as a token gesture by rolling out their referral program the very next day? It is impossible to know… but we can say with certainty that for all the benefits of doing business in China, the costs are just as high.

For more on this story, including the cultural meaning and business implications of “core socialist values” and Elon Musk’s own position on socialism, read Tesla Takes the Socialist Pledge on Art of Procurement or listen to this week’s episode of Dial P for Procurement.

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