Musk's China Addiction in Two Charts
[Opinion] Elon Musk's EV company has contractual obligations to the Chinese government. Tesla has no choice but to invest and earn revenue there
Good Morning from Taipei,
A lot of foreign companies have come and gone in China over the past few decades. Often their entry includes incentives from local and national authorities to set up factories, hire staff, and access the local market. Elon Musk’s Tesla counts China as its second-largest market behind the US.
Recent tensions and a desire to broaden their supply and revenue bases has spurred dozens of foreign companies to scale back or exit China. But a deal signed in 2018 between Tesla and the Shanghai government requires the US company to keep selling cars in the country.
The first part of that contract was to meet a minimum RMB14.08 billion ($2 billion) in capital expenditures by the end of 2023. That obligation has been fulfilled. The second provision requires Tesla to generate at least RMB 2.23 billion ($313 million) of annual tax revenues starting at the end of 2023. It has already hit that target.
With its beneficial tax deal of 15% having expired, Tesla is back to the 25% statutory corporate income tax rate. Over ten years that works out to $3.13 billion in minimum taxes to be paid, which implies a base line net income of $1.25 billion per year.
Whatever China’s future, Elon Musk and Tesla cannot afford to not be there.
Thanks for reading.
More from Tim Culpan’s Position:
Xi Jin Ping also lent a lot of money to Musk to build up his Shanghai factory. Part of the deal.