Tesla’s Fall From Grace in China: A Classic Bait and Switch Story and How China Stole Intellectual Property from Western Tech Companies

On July 7, 2020, The director of the Federal Bureau of Investigation (FBI) Christopher Wray said that “of the nearly 5,000 active FBI counterintelligence cases currently underway across the country, almost half are related to China.” In a speech delivered at the Hudson Institute, Director added that “the FBI is opening a new China-related counterintelligence case about every 10 hours.”

You might be wondering what this has to do with Tesla. As you will later see in this article, China has been stealing intellectual property from US tech companies for over two decades and Tesla is not an exception.

Analyst Jeff Schulze even went as far as saying that “China’s alleged intellectual property theft a bigger threat to market than tariffs.” Surprisingly, the country even brags about stealing intellectual property from Western nations. One China defender claimed that Chinese “bandit innovators” could be good for the world. In 2019, 1 in 5 U.S. companies said China stole their intellectual property.

So how did Tesla fall out of favor in China? To fully understand Tesla’s unusual history in China, we have to go all the way back to 2014. The company got off to a slow start in China. At the beginning of that year, Tesla had 5,000 preorders. However, by the end of the year, Tesla had shipped some 4,700 cars to China but sold only 2,500.

Fast forward six years later. In January 2020, Tesla opened a new Gigafactory in Shanghai to meet the growing demand for its electric vehicles. The video of Musk dancing to Chinese music went viral on the Internet. Musk also used the occasion to celebrate the first Tesla Model 3 cars delivered to the public from the Tesla Gigafactory in Shanghai, which Musk said will design a future Tesla vehicle in China that will be sold globally.

At Tesla Giga Shanghai NSFW!! pic.twitter.com/1yrPyzJQGZ

— Elon Musk (@elonmusk) January 7, 2020

A year later, things started to go south for Tesla in China. In March, CNN said: “Tesla may be much worse off in China than anyone thought.” The China Passenger Car Association reported that Tesla’s Chinese sales were down 27% from March to just under 26,000 cars — “much worse than the overall 10% decline in China’s electric vehicle sales overall,” CNN said.

Four months later, the situation got even worse. In August 2021, Tesla domestic China shipments plummet by 69% in wake of recalls. Shipments of Tesla’s China-made cars to the domestic market plunged last month following a rash of negative publicity for the EV maker and the recall of nearly every Tesla sold in China.

As you may recall, we reported back in February that Tesla was summoned by the Chinese government officials to discuss consumers’ complaints about quality issues such as abnormal acceleration, battery fires, and remote vehicle upgrades. As we stated back then, “the summon about the quality issues was a ruse for China to steal Tesla’s intellectual property and force Tesla to reveal its technology to the Chinese government.”

But this is just part of the story. Our friend, Jake Tran, took us through memory lane and it all started. In this mini-documentary, Jake explained how Elon Musk became “the Chinese president’s favorite capitalist.” Which raises the question, what did China really want out of it? Tesla did in fact raise the bar for local EV manufacturers like Nio and Xpeng: their tech was getting better, and their sales had been on the rise. All of a sudden, Tesla wasn’t so useful to the Chinese government anymore, their priorities changed.

“Tesla quickly started running into problems. Suddenly, Tesla executives were being summoned by China Regulators to “discuss” safety issues in their cars, including reports of random acceleration and battery fires,” Jake said.

As time goes on, Tesla really started to fall out of the Chinese government’s favor when some of its cars were banned from military complexes over fears that they could be sending their camera data back to the US government.

The last blow to Tesla came after China stated that all smart cars would need to store their data in-country. Things just kept getting worse. Local governments started reviewing Tesla ownership among their employees and then came the last straw.

That was not all. A few months ago after claiming Tesla EVs’ autopilot system could be activated automatically and possibly lead to crashes, China ordered nearly 300,000 Tesla cars sold in China to be recalled, and their software upgraded for free to fix the safety issue. Tesla was forced to apologize. Tesla’s ordeal in China is getting worse instead of getting better.

In this well-researched video coupled with his story-telling talent, Jake explains China’s plan and how Tesla falls from grace in China. Enjoy!