Tesla’s Dependency on China ‘Very Concerning’: US House Committee Chair

A Tesla sign at its factory in Shanghai on May 13, 2021. (Aly Song/Reuters)

Tesla’s announcement to build a megapack factory in Shanghai has prompted questions about the American electric carmaker’s dependency on China, and a U.S. representative finds it “very concerning.”

“Tesla seems entirely dependent, A, on the largesse of the federal government via tax breaks, and B, upon access to the Chinese market,” Rep. Mike Gallagher (R-Wis.) told Reuters on April 10.

Gallagher, chairman of the U.S. House Select Committee on the Chinese Communist Party (CCP), expressed concern about how Tesla would balance its operations in China with the support it receives from the United States.

“The sort of deals they’ve struck there seems very concerning. I'd just be curious to know how Elon Musk balances both of those,” he said.

Gallagher said he hoped to discuss with Tesla the company’s dealings in China, which would be similar to his meetings with Apple, Google, and Disney last week—all of which had businesses in China.

Chairman Rep. Mike Gallagher (R-Wis.) listens during a hearing of a special House committee dedicated to countering the Chinese Communist Party, on Capitol Hill, in Washington, on Feb. 28, 2023. (Alex Brandon/AP Photo)

However, Gallagher indicated that lawmakers may need to consider issuing subpoenas to Tesla or other companies “if we reach roadblocks and we get to a point where lawyers are getting involved with answers.”

His remarks came as Tesla said on April 9 that it had struck a deal to build a megapack factory in Shanghai, which will produce 10,000 megapack units per year, equivalent to 40 gigawatt hours of energy storage.

Republican presidential candidate Vivek Ramaswamy stated on Twitter that Tesla’s decision to build a megapack factory in Shanghai is “concerning” as the company seems to be “doubling down” with the CCP.

“When we’re all forced to drive electric vehicles, the real master won’t be Elon. It‘ll be [CCP leader] Xi Jinping, and the name ’Master Plan 3' is eerily spot-on,” Ramaswamy stated.

“Companies should [and] will continue to do whatever allows them to be most successful, but it’s the job of U.S. policymakers not to let American companies sell Xi Jinping the rope today that he'll use to hang us tomorrow,” he added.

Tesla CEO Elon Musk responded by saying that his company was “increasing production rapidly in Texas, California, and Nevada.”

“Our competitors require subsidies, not us. That said, if competitors get subsidies, Tesla should get them too. Tesla’s competitive position would improve if all subsidies ended,” Musk said on Twitter.

Tesla planned to expand the Gigafactory Shanghai, its most productive automaking plant, to add an annual capacity of 450,000 units, Reuters reported last May.

The U.S. company, however, had grappled with rising inventory in Shanghai as demand started weakening in the third quarter, leading to aggressive price cuts in its major markets globally in January.

Tesla’s Profit

In October last year, Morgan Stanley analysts said that Tesla’s shares should trade as a Chinese tech stock because half of Tesla’s profit comes from the Chinese market.

They assessed that Tesla’s dependency on the Chinese market could last until 2030.

“We estimate Tesla generates as much as one-half of its profitability from the Chinese market, arguably making the stock a derivative of a Chinese Tech stock,” the analysts said, Business Insider reported.

Last December, the Shanghai plant sold nearly 42,000 electric cars in China, a drop of 40 percent compared to December of the previous year. Tesla even suspended production at its Shanghai plant on Dec. 23, scaling back its production capacity.

According to Troy Teslike, who tracks Tesla’s production and sales, Tesla’s backlog of orders dropped by 85 percent in the six months from its high point in July 2022 to the end of the year.

As of the end of last year, the backlog of orders in North America had been cleared, and orders for delivery in China were close to zero, Teslike said via Twitter.

Anne Zhang, Lynn Xu, and Reuters contributed to this report.