Chinese EV Companies About To Crush Musk’s Tesla?

Updated on

Whitney Tilson’s email to investors discussing why Tesla Inc (NASDAQ:TSLA) didn’t settle with Walmart Inc (NYSE:WMT); Chinese EV companies; Review of BMW 3-Series vs. Model 3; Tesla is an EV brand awareness juggernaut; ‘Teslakillers’ are having a really hard time killing Tesla.

1) A friend pointed out that one reason Tesla didn’t settle with Walmart it that it would open the floodgates to every other customer with similar issues…

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Q2 hedge fund letters, conference, scoops etc

2) Which makes this post on Reddit from seven months ago seem more timely (this is the first I’ve heard of this):


7 months ago

If you want the truth here it is. Tesla has installed millions of defective amphenol connectors all over the u.s. These connectors are catching fire and burning down homes and businesses. They are hiding it with something called project titan where they are hiring thousands of people just to replace connectors. The problem is that they are testing it with infrared cameras to see if the connector heats up and only then replacing it. These connectors are defective meaning just because it passes one day it does not mean it wont fail the next even after testing. Tesla refuses to replace all of these connectors betting on insurance to cover any fires and only looking at homes when their monitoring platform reports arc faults. This is why they are dismantling the solar division with layoffs. Right now if you have tesla installed on your roof you may have a ticking time bomb ready to kill you in your sleep. If you have it on your business same thing. Don't believe me, google walmart fires. If you have tesla stock better prepare to sell it because when this gets out it is going to crash. They need to do the right thing and shut off all systems with these connectors and replace them with mc4. They wont because it would cost them hundreds of millions to do and hundreds of thousands of dollars on lost production. Do the right thing tesla.

3) One of my bullish readers wrote to me:

License secured. In record time. China continues to roll out the red carpet for Tesla. Huge competitive advantage. China-made Model 3s will be high margin. Extremely impressive results by Tesla. Probably only a handful of companies that could pull such a thing off. While local "darling" NIO delivers a measly 837 cars in July.

At $285, your short call was good (temporarily) but only because TSLA was over-valued, not because on any of your other criticisms, which are continuing to prove wrong.

My reply:

We’ll see. The Chinese are thrilled to have Tesla come… so they can steal its technology… and never allow it to make a profit…

Another friend added (I’ve highlighted the key paragraph):

This is not “license secured.”  We are talking about different licenses here.  It looks like Tesla obtained what is equivalent of a construction completion certificate.  Basically, someone signed off on the building having been erected accurately.

That is not the relevant “license” here.

The relevant license is the one that enables Tesla to sell (electric) cars in China eligible for the full list of Chinese EV subsidies.  All domestic Chinese EV companies are eligible for those subsidies.

There used to be (at least) 3 requirements for what a foreign automaker needed to do in order to become eligible for those subsidies:

    1. Establish 50/50 JV with acceptable Chinese partner.  Clearly Tesla did not do this, and China appears to have waived this requirement.
    2. Buy battery cells from an approved Chinese supplier.  Tesla has not disclosed which battery cell vendor will be used for cars made in this factory.  China may be relaxing this requirement, but it’s extremely unclear what precisely will be the policy.
    3. Use a brand that has not previously been used anywhere else in the world.  For example, Volkswagen was not allowed to use the VW, Skoda and SEAT brand names.  Neither Tesla nor China (to my knowledge) has said whether this requirement has been waived or not.  If this requirement has not been abolished or waived, Tesla could not sell this car in China under the Tesla brand name, and also be eligible for the full suite of Chinese EV subsidies.

In the end, however, almost none of this stuff matters.  If the Chinese politicians want Tesla to become a successful company, beating all the local Chinese EV companies, no technicality will stop them.  Likewise, if the Chinese politicians don’t want Tesla to beat the local Chinese EV companies, no technicality will protect Tesla from any imaginable “obstacle” that will be erected in its path. 

PS--I just heard from a source over there, who tells me that the foreign automakers operating in China believe that point #3 above -- the brand restriction -- will be going away.  It has not been officially announced yet, but that is the (optimistic, realistic) belief by the auto execs over there who know more about that matter than I do.

That still leaves the door in an unknown open/close state as to whether Tesla will be awarded the kind of local Chinese EV production license that will make it eligible for the full suite of EV subsidies or not.

The lack of clarity alone, puts the cards in China’s hands.  They could use any excuse, or no excuse at all, to bend this situation in any direction the governing politicians want.

4) Turning to some bullish articles… Here’s a video that compares the classic BMW 3-Series vs. the Model 3. Answer (according to this reviewer) is that the Model 3 is superior in every way. Does The Best Compact Sport Sedan Come From BMW Or Tesla? – 3-Series Vs. Model 3

5) Tesla Is An EV Brand Awareness Juggernaut Compared To Competition. Excerpt:

When it comes to electric vehicle brand awareness in the marketplace, Elon Musk’s Tesla by far surpasses all others, according to a study released Monday by Cox Automotive.

6) ‘Tesla Killers’ Are Having A Really Hard Time Killing Tesla (true in the U.S. – but not in Europe)

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