Tesla Strikes Deal With Shanghai to Build Factory in China | Hacker News Reader

Tesla Strikes Deal With Shanghai to Build Factory in China

wsj.com

292 pointslxm179 comments

The 5% stake in Tesla Tencent took a few months ago was extremely strategic. Not only did Tesla get some much needed capital for Model 3 production, I'm sure Elon's friends at Tencent were happy to introduce Tesla to the right people in the Chinese government to make this deal happen and boost their Tesla stake. A crucial step as China will likely soon represent the biggest market for EVs (if it isn't already?). Just goes to show every entrepreneur how valuable equity in your company can be not just for access to capital, but also access to people.

It's a bit sad that some Governments exercise so much control on businesses and knowing the right people means so much.

There should be a Goldilocks zone between Laissez-faire economy and extreme regulation.

"...knowing the right people means so much."

Doesn't it everywhere in life? Unless one prospects gold in the wilderness, I suppose.

Even still, knowing the right people to sell to might come in handy.

I think the point was that even at that level of business, where some people might think that money can get you access to everything, knowing the right people is __still__ important.

Interesting thing about the Klondike gold rush: It was considered polite to collaborate with neighbors and inform them about good prospects. Robert Henderson snubbed George Carmack, because of Carmack's native/indigenous wife. Thus Carmack didn't tell Henderson about a major find and Henderson missed out on a great fortune.

Almost all promotions in the everyday company happen because the reportee has leverage with the manager.

Work barely if ever gets you anything in life.

Not nearly to the same degree as in this situation.

Interesting that HN tend to swing between two extremes in this: "it is meritocracy, all is just about work" and "everything is corrupt and based on who you are friend with" (plus some who attempt to frame latter as former through it is not).

I was not implying cronyism (alone). Human lives are deeply affected by relationships - personal, business, or lack of. For example, what if Jobs had not known Woz? What if Bill Gate's family wasn't super established in the way it was? What if Softdisk had not employed the crew that became Id software? Etc.

This does not mean an individual contributor can't come up with something groundbreaking locked away in some closet. But generally, that is million to one even in a population of over achiever engineers.

Keep in mind, HN isn't just one person.

Yes, but it as if the two groups never met, I don't recall discussion between the two. Also it is as if there would not be people in the middle (where I am) .

When I was young, I believed in the meritocracy. Now I know better.

In case anyone gets concerned that Lassie the dog isn't free, the parent comment probably meant Laissez-faire.[1]

1. https://en.m.wikipedia.org/wiki/Laissez-faire

Yes, corrected. Thanks.

pfffiew thanks!

There is - just don't do your business in China or the US if you want that. Most developed countries fall in-between those two extremes.

Of course, the disadvantage is that it'll be harder for you to crack the lucrative American market...

> It's a bit sad that [...] and knowing the right people means so much

Isn't that called networking around here?

When the right people work for the government, it's called lobbying.

Idk, I think this characterization is a little on the naive-idealist side.

Access to people in positions of power has always been an important part of the game. Those gatekeeping peddlers of access and influence can be financiers, politicians or corporate bosses. Often, it's all mixed together.

In the west, it's sometimes been considered faux pax to emphasize the political component publicly. That generally doesn't apply to certain endevours, where the idea of doing anything big without such support is absurd. Banking, large scale construction and military industry comes to mind. If you can't get in a room with the big boys, you're not a big part of those.

I'm not against idealisation. Like power in the hands of the people, building your fortune by the sweat of thy brow is admirable and attractive morally. As ideals, they can and do shape society and history. But societies and economies are not really built like that, never have been. Power matters.

When gatekeepers are corporate bosses or financiers it's fine, the most they can do is to say no. In case of state and authority, there's much more power imbalance. If something goes wrong, or entrepreneur falls out of favour of authority, it becomes a no-rules game. Prosecution, seize of assets, state sponsored media witch hunting.

Again, I sort of disagree on similar grounds.

The clear distinction between private and public is (in my estimation) more of an idealisation of free market economic systems than reality.

In practice, money, power and influence at sufficient scale are the governing system. The idealisation is built on (a) very abstract idealised example (like Adam Smiths charming world of bakers and miller's) and (b) real world examples where free market dynamics work well, the way they are supposed to. For example, much of the SV-2.0 world before the money and politics got to the scale it's at now. But even here, connections always featured prominently at certain choke points like fundraising.

The world of finance in particular is (I feel like I need to keep emphasizing imo, I do not have absolute proofs and I'm speaking in very general terms) more a part of the "public" governing system than the "private" realm of free individuals. Like I said though, I think these terms are not as clear as many HNers do.

The quintessential counter example is Putin's Russia in the early 2000's. The oligarchs wouldn't play ball with the state, so Putin put the richest one in a cage on television. The other oligarchs immediately caved to work with the state on severely disadvantaged terms.

In a power struggle between money and the state, the state always wins. It has the authority to instantly justify its seizure of the money, whereas the money will have to work in pretty visibly ugly ways to justify why it should seize the authority.

This is why you see billionaires that become political officials more often than revolutionaries.

I don't feel as though this proves some golden rule on world affairs.

I think Russia is like this because of their unique past and I think other countries do things because of their own pasts, there is no one rule like gravity that ties human behaviour on a mass scale together across cultures.

If anything I find I can turn your argument into reverse by, the reason why you see so many rich politicians in America is because Money is greater than State and this is why billionaires become political officials rather than revolutionaries. But I wouldn't say that because it would rather simplify a complex situation

> there is no one rule like gravity that ties human behaviour on a mass scale together across cultures.

Self interest/self preservation is genetic.

I think you are right, self-preservation - the atoms of human motivation and behaviour

There are places where money is greater than state. That's where countries that have bribes as part of their governmental interactions - money literally circumvents the states' authority. Having a billionaire politician means they're playing ball with the states' rules - they are not circumventing the rules. They may rewrite the rules within a legal framework - but they're still playing ball with the state's power, not hiring thugs on the street to stuff ballot boxes.

I think I just take a different view than you, who writes the country's rules, the people in power, who has the power, the people with money / property to protect, I think we are both describing the same loop just diverge on where this loop began.

This thread is interesting and I'm far from entrenched in any of the position implied above.

But... I don't think we can make a lot of progress without a Guinness and some banter at this point.

That said, I would call the post Soviet oligarchy and it's intrigues a game where corporate interests (formerly "industry") finance and government are deeply interlinked. Those power struggles are internal to that (very young) form of "government" which you (and most people including me) call an oligarchy. The oligarchs control different pieces of all three, including Putin the senior oligarch.

If you ever find yourself in Zurich, I'll take you up on that Guinness. :)

I agree, it wasn't an ideal "free market" "free government" scenario. That's probably the strongest argument against this example. But it does provide an interesting use case nontheless!

I live near the old Guinness factory. Same. :)

But in Putin's Russia, the operating principle is "l'etat c'est moi".

It's not some idealized state vs an idealized private sector -- it was very personal and personalized all the way through.

> The clear distinction between private and public is (in my estimation) more of an idealisation of free market economic systems than reality.

Let's look at mall cops vs real cops. A real cop has the authority to blow your head off, a mall cop not as much.

A clear distinction between private and public should be something to hope for. Otherwise you end up with prisons being run by for-profit companies, and leaders of industry writing the laws. That isn't a free market, that's corporatism.

People falsely believe that they can give the government more power, and in turn, the power will be used to regulate industry. Almost like raising a big dog to provide protection. But what ends up happening is, industry comes by with a big ole steak and wins over the dogs loyalty. And now agencies that were supposed to protect us are the ones selling us out.

If private and public initiatives aren't distinctly split, you'll end up with leaders of industry taking over the public sector and distorting the market for everyone else.

I assume your 2nd paragraph is at least a little tongue in cheek.

Otherwise, I think your trying to characterized things in clear public-private terms, the language of particular political and economic philosophies. What I was saying is that I think that terminology is flawed.

The public-private dichotomy is never a clean break. Corporations are a part of the governmental system, and this is not limited to influencing laws and their enforcement. That is, they are the deciders (often) of what does and doesn't happen, and how.

What do you think a better terminology is?

I happen to agree with you. The more I think about it, the more sense it makes to use computer-network terms to describe the human network. Because what we're trying to analyze is fundamentally similar - which is the rate consensus can be found, network uptime, security vulnerabilities, decentralization, failover, etc.

In a way democracy is a kind of p2p network. And then there's confusion when you ask "who is in charge" because you could say no one is in charge or everyone is in charge - and both could be correct.

Gatekeeping is the reason we wind up with Harvey Weinsteins and Donald Trumps. People working for the civil government have pretty cushy jobs, it's not too demanding to ask that they make it so non-connected people can achieve the same outcomes as connected people.

China is China and they can do what they want, but I expect better out of the west.

How would that work?

Adaptive regulation, leaner legal code, and regularly scheduled trust busting.

I think busting public sector unions would be a good start, making the public employees at-will would be even better. And citizens should have a feedback mechanism - surly DMV clerks and permit granters who don't follow up should hit the streets.

We have to incentivize service much more than we currently are.

> it's not too demanding to ask

You're saying that people should give up power by themselves. This is rare.

Democracy works better.

Either they give it up or they can get a new job. We have a lot more government than we need and we get a lot less than we pay for.

I'm all for it if someone has a good way of going about making it happen. But let's play fair... We can't appeal to the western tradition of societal fairness of that kind. It hasn't existed.

It's fair enough to want it to become a part of it, but it has to be invented first.

Knowing the right people is still extremely powerful in a free market economy.

What if this seperation of government and buisness exist only in your head? What if china was not a government, but a cooperation? Would you even notice? Would you complain about a cooperation doing a deal with another cooperation? Or is that thought damaging the reference frame? If a government and cooperation would be the same. The whole artificial antagonistic distinction would break down- and you would just stand there, a ranting peasant in the lower ranks of a pyramid scheme, played to hate the east side of the same pyramid..

Even in Laissez-faire economy who you know is often more important than What you know. Does not matter if you are looking for millions in funding, or for a minimum wage job who you know can often be the difference between success and failure.

Where government gatekeepers don't exist, the private sector inevitably finds some way to fill the power vacuum.

> There should be a Goldilocks zone between Laissez-faire economy and extreme regulation.

Arguably the US spent the past five decades in exactly that region.

Also, I'm not sure that "corruption" and "extreme regulation" are really synonyms. The latter is used as a tool of the former of course, but it's not the only such tool and not all oppressive regulations are "corrupt".

Some governments? All governments exercise control on all businesses to some degree and vice versa. Business exert control on government too.

Knowing the right people is easily the most important factor in your business succeeding, not just in china, but in the US as well.

Elon Musk's contacts in the US government is why he was able to get hundreds of millions of dollars to bailout a bankrupt tesla many years ago.

Elon's success, even with paypal, had more to do with knowing the right people and having the right information than anything else. The same with tesla.

yes, for a company like Tesla to invest in a new factory in any city, you need to know the right people, otherwise, no one is going to take your money and jobs you provided.

Until now, Nissan is still the leader in the market. Just to remind you.

https://www.bloomberg.com/news/articles/2017-08-29/the-leaf-...

Ah yes but Tesla is an American company and the media darling.

In the real world Tesla is small time. They make only 100k cars a year and their research is being outpaced by the big corporations.

Tesla received no money from tencent. Tencent acquired their shares in the secondary market like nearly every other investor.

Whether Tencent buys from Tesla or from someone else doesn't matter. The increased demand pushes the share price up either way. Tesla has sold shares this year, and because Tencent's buy pushed the share price higher Tesla saw more proceeds from the same number of shares than they would have had Tencent not acquired a 5% stake.

Price doesn't always increase after a trade. Depends if the settlement price is above or below the previous trade's price.

Seems like Tesla has been eying this move for over a year. Bloomberg [0] broke this story last year (June 2016) saying Tesla planned to invest $9 billion in Shanghai, according to a 'person with knowledge of the matter'. However, one key point from last year's article is:

Manufacturing in China would allow Palo Alto, Calif.-based Tesla to avoid a 25% import levy, making its electric vehicles more competitive against luxury-brand rivals, such as BMW and Audi, as well as local offerings by BYD and BAIC.

Last year, it sounded like Tesla's motivation to manufacture in China was to avoid this tariff. Now today's WSJ story says Tesla is still likely to pay the 25% tariff. Sounds like Tesla got shafted by Chinese protectionism.

[0] Non-paywalled Bloomberg article http://www.industryweek.com/competitiveness/shanghai-said-be...

Its either 25% import tax, or 50% profit. Chinese are really smart about protecting their own economy.

I personally think it’ll be another 30-50 years before it’s clear whether it’s actually smart or not.

My guess is it should be obvious much sooner, 20 years or so.

It seems abundantly clear at this point that China's economy is vastly "smarter" than ours, in terms of aligning productive resources to where the country needs them most.

At what cost though.

Is that why China still has hundreds of millions of extremely poor subsistence farmers? Not all of China is Beijing/Shanghai/Shenzhen.

partly yes, it's managing strategically their move to the city/middle class to a) avoid starvation and b) keeping an healthy supply of fresh internal market

not that I condone the various atrocities and general suffering happening there, but yes from the economical point of view that's why and that also makes sense, as cruel as it might be.

you simply cannot "industrial revoluzionize" a country that big as England did in the 1800. they maybe can do more and faster, but that's very hard to model.

Sure you can and they are are much faster rate. England had growthof 1.3% during the industrial recolution. That was rapid growth back then. China has been doing 10% for many years.

So what England did is not impressive by todays standard. Event the most backwards developing countries today can achieve that growth rate.

gdp growth != rate of urbanization

Are you asking "why hasn't a country lifted a billion people out of poverty overnight?", or, "why have they only lifted 500 million people out of poverty in 30 short years?"

The current number of extremely poor people in China is less than 30 million, less than 2% of population.

From Google:

"According to the World Bank, more than 500 million people were lifted out of extreme poverty as China's poverty rate fell from 88 percent in 1981 to 6.5 percent in 2012, as measured by the percentage of people living on the equivalent of US$1.90 or less per day in 2011 purchasing price parity terms."

In 2017 there are around 600 million people in rural area. Their average monthly income is 3300 yuan or around 500 USD, more than $15 a day. Cost of living there is cheap and this is middle income, not poor.

China has radically more extremely poor people than that. The number is closer to 500 million, so long as absurd numbers like $3 per day are not your line.

75% of China's middle class is in the $2 to $10 per day income bracket. And that's their middle class, the bottom 1/3 are even worse off.

https://chinapower.csis.org/china-middle-class/

(Oct 2014)

“Poverty is still a salient problem in China,” Zheng Wenkai, a vice-minister at a government office responsible for poverty alleviation and development, said at a news briefing Tuesday, according to the state-run China Daily newspaper. About 200 million Chinese, or 15% of the country’s population, would be considered poor by international poverty measures, set at $1.25 a day, Mr. Zheng added.

https://blogs.wsj.com/chinarealtime/2014/10/15/more-than-82-...

Two simple questions that make the point easily:

What's the median income, in non-purchasing parity terms, for the bottom 50% of people China?

How many people does China have living below $5 per day, in non-purchasing parity terms?

Answer those please.

Why non-purchasing parity? The cost of most goods is significantly cheaper in China, even more so in the relatively poorer rural areas.

I answered the comment which used "extremely poor" and "subsistence farmers" so I used the international poverty line ($1.90). At $3.2 (World Bank's lower middle income poverty line), it was 12.1% or 160 million people, but that was 2013. The number dropped rapidly every year. It should be lower now.

http://povertydata.worldbank.org/poverty/country/CHN

Purchasing parity is a good measure for living standards. You can buy a full meal for 10 yuan or $1.5 in rural China. It is not fair to measure their income with no adjustment. Cooking for a family may cost less than that. $1 in rural China is worth much more than $1 in the US.

Your quotes were from 2014. China is improving every year. You can Google for more recent statistics and quote them here if you disagree.

Wages aren't worth anything without purchasing power parity. You'll have trouble surviving on $10/day in the US (incl. housing) but will be fine in many other regions of the world, including most of India and China.

Is that 50 years on top of ~40 years with stagnant wages? I don't think there is time for that.

> Real wages in the United States, have stagnated since the mid-1970s contrary to expectations that real wages should raise in line with increases in productivity. Between 1973 and 2013 productivity in the United States grew by 74% whilst compensation for workers grew by 9% in the same period. The stagnation of real hourly wages has resulted in a Middle-class squeeze as increases in inflation and the cost of living exceeds the growth of real wages for members of the middle and lower classes.

This assertion doesn't pass the smell test, unless you believe that the median working-age US household by income had a worse standard of living in 2013 than it did in 1973.

In reality, the distribution of employment income has shifted from cash wages to expanded benefits. There has been substantial growth in two-earner households which indeed puts downward pressure on individual wages but increases household income and wealth. Productivity gains have resulted in much cheaper goods in a variety of sectors, leading to a couple of decades of historically low inflation. We've also had big demographic shifts in immigration and aging over 40 years that make point-to-point comparisons potentially misleading.

> This assertion doesn't pass the smell test, unless you believe that the median working-age US household by income had a worse standard of living in 2013 than it did in 1973.

Actually you are the first one I see to dispute this. Do you base these smell tests/beliefs in any public data? I would like to see the source to have something to dispute this frequently stated claim.

Let me reverse this: What do you think was better about life for the median working-age US household in 1973? Their house was smaller. Their car was less safe, less reliable and guzzled gas. They had no internet, no mobile phones and only 3 television networks. Eating at a restaurant was a monthly indulgence at best. Air travel was a luxury. Their children could expect to have seven fewer years of life, and were markedly less likely to go to college.

Think about how much someone would have to pay you to live a 1973 lifestyle, and it should be obvious why claiming there have been 40 years of “stagnation” is nonsense.

Nice strawman. Discussion was about real wage growth (vs. productivity gains).

Quality of life != wages

And FYI many people view U.S.quality of life as garbage, so maybe there really is not much growth to brag about.

Why is it dangerous to allow the Chinese people to buy Tesla cars at market price?

To protect their local EV industry, no doubt, which they apparently want to protect because: "China is encouraging and supporting the development of alternative energy options, especially in terms of electric-vehicle development, because they anticipate the rise of new fuel technologies and greater fuel efficiency will give them greater energy independence." [1]

[1] https://en.wikipedia.org/wiki/Electric_vehicle_industry_in_C...

>Chinese are really smart about protecting their own economy.

So is the West. Ironically, the USA was one of the most protected economies around the second world war. And GB before that.

All SEZs (special export zones) are set up like this: they are in China, but technically outside of China for import purposes. So that iPhone that is "made in China" is actually more expensive because it is made in an SEZ and must be imported into China.

Actually going in China would require a JV (joint venture), which would likely siphon off a lot of IP that Tesla wants protected, let alone profits. China is not the champion of free trade that they pretend to be.

Tesla will let you use their patents for free. They will let anyone use them, even direct competitors. There is no charge.

Any other IP could just be reverse engineered, for the most part.

https://www.wired.com/2014/06/tesla-just-gave-all-its-patent...

They don't as of yet, at least not in any real sense.

[1]: > Around the three-minute mark someone asks how many automakers have taken Tesla up on the offer to use its patents, and Musk notes:

>>> Musk: We actually don't require any formal discussions. So they can just go ahead and use them.

>>> Reporter: Is there a licensing process?

>>> Musk: No. You just use them. Which I think is better because then we don't need to get into any kind of discussions or whatever. So we don't know. I think you'll see it in the cars that come out, should they choose to use them.

Sounds nice, but no legal department on Earth is ever going to approve of deliberately using another company's patents without an explicit licensing agreement, no matter what non-legally-binding statements that company's CEO has made. As a sophisticated businessman, Musk is well aware of this fact.

[1] https://www.techdirt.com/articles/20150217/06182930052/elon-...

Your link seems to indicate otherwise? Notably, that it will enable Apple and others. They also seem to think it is a legally binding statement, if a little vague.

That was my takeaway, actually.

A licensing process is different from having a license. I know plenty of companies use open source software. There is no real process for something using something with an MIT license. You can just use it. As someone who has worked as a programmer, Elon Musk would be familiar with that.

Regardless though, the idea that no company would ever use the patents flies in the face of reality:

https://www.usatoday.com/story/money/cars/2014/10/14/tesla-m...

The process is verifying that is has an MIT license! Granted, it's a short process. That's easy to do with a software package. What's the equivalent of a COPYING file for this? Have they published a legally-binding document anywhere? Or would a lawyer say that Musk's public statements were enough?

I am not a lawyer, but something like this might apply: https://en.m.wikipedia.org/wiki/Estoppel#Promissory_estoppel

I'm very hesitant to play lawyer but the first sentence from the second paragraph of that section is, "A promise made without consideration is generally not enforceable."

No legal department on Earth? From what I understand there have been many examples of Chinese companies using clearly stolen IP [1] - pretty sure they would be happy to use these patents.

[1] https://www.nytimes.com/2017/08/15/opinion/china-us-intellec...

That assumes those companies have legal departments.

I don't think the public promise has a super-secret gotcha button which in some hypothetical future Tesla pushes to sue for patent infringement.

Think what you want about Elon, but he made the pledge openly and directly I think that means something.

What if Larry Ellison acquires Tesla in an aggressive takeover? How much are Elon's words worth then?

even after being acquired, a company doesn't absolve of it's obligations to honour contracts (verbal or written).

If Ellison decides to retract said IP waiver, he would have to publically say so, and because the existing IP waiver Musk have provided doesn't seem to include any terms such as termination, i would assume it's an indefinite and perpetual waiver. Hence, Ellison will have to sue (and probably lose) to have existing usages of said IP to be discontinued.

IANAL.

Tell that to Google, who used the verbal agreement of the Sun CEO that they could use the Java API. Taken over by Oracle and now they are sued over it.

The joke for companies looking to expand into China is that there will only be one copy of the software or device sold.

Ha Ha, Right? Chinese don't feel the same way about IP as Westerners.

I assure you, as a Westerner, I don't feel the same way about IP in the same insane way that the United Sates Congress does, and tries to impose on the world.

Patents don't mean much in china, especially American ones, and especially for products that will be used in china and not re-exported to the west.

Not everything can be reversed engineered, for example jet turbines that china still can't produce competitively. Battery tech is probably similar, not to mention software IP.

There's more to IP than patents. I imagine Tesla has a lot of trade secrets wrapped up in their manufacturing processes.

I thought China was part of the WTO and has most favored nation trade status with the US. Does the US have such high import taxes on Chinese goods? I don't think so. Googling around I found this[1] 2014 article about unfair taxes on US cars and a win for the US in the WTO court, but maybe China just ignores that ruling. It does not seem reasonable for the US to allow China to impose taxes and force tech transfer from the US, especially since the US has such a high trade deficit with China. There was some talk about this problem during the US election, but I have not seen any action on the issue yet.

[1] http://www.latimes.com/business/la-fi-wto-autos-china-201405...

Cars are a special thing in US trade deals. Free trade or not, the US auto industry gets special protections. This is also true of other countries (Canada, Europe etc) but is most true of the US.

The ruling was about anti-dumping taxes that China imposed as a retaliation for US imposing anti-dumping tax on Chinese tires. Anti-dumping tax is in addition to regular tariffs. Since China lost the case I assume these anti-dumping taxes were abolished.

As I understand it, most favoured nation status just means that China has to charge the same tariffs on imports from the US that they charge when importing equivalent items from other countries which they don't have trade deals with. (Which probably rules out most kinds of tit-for-tat tariff policies.)

I think your comment needs a historical perspective. Protectionism and tariffs played an important economic part in the rise of all of the current world superpowers. Pretty much everyone from the USA, to GB to Sweden practiced heavy protectionism through tariffs and subsidies (which also featured in the civil war). While you can pick any window in history and adjudicate whats "fair", the alternative to "Chinese are sneaky" is that they're simply doing what others did before them to become dominant.

If you read my comment I am not talking about "fairness" or advancing some crypto Chinese racism. China is doing great and advancing quickly. Good for them. My perspective was from the other side and questioning weather or not the policy from the US side is a net good for the people in the US, aside from the top 0.01%.

I'm not suggesting you personally harbor ill towards them in a racial way. I could have worded it better, sorry ! My comment was political. A lot of commentators here seem to not understand the historical perspective on tariffs, and subsidies and protectionism.

I think people understand the 'every country will look out for themselves' part. What a lot of people don't is the 'this is what we used to do too' part.

Another non paywalled archive: http://archive.is/nRchr

I wonder how concerned they are about leaking proprietary technology from Chinese employees. Apple constantly struggles with this since the employees are paid little, but the incentive to leak and "share" information is very lucrative.

Even if they were well compensated the Chinese govt is very good at convincing people to leak or share IP with promises of huge cash rewards or career opportunities within national companies.

I'd imagine Musk would be wary of this and put the proper controls in place.

Usually they dont even have to convince anyone, the only way to build a factory in China used to be a joint venture owned by Chinese partner.

Here Tesla is willing to pay '25 percent tariffs' to avoid that, but I highly doubt it will do them any good when it comes to Cherry Model Q/Geely Electric showing up in 12-18 months build using parts interchangeable with Model 3.

I imagine Elon knows this, maybe he thinks he can keep one step ahead for long enough to make it worthwhile.

I honestly don't think it will matter. Brand vanity goes a long way in China, and I bet Tesla will reliably command a premium over chinese knockoffs. Plus, the EV market in China is going to be so enormous that Tesla can take just a small piece of it and still be outrageously successful.

It's more the risk of China producing a good EV themselves and selling that in the rest of the world.

Have there been any instances of a Chinese firm copying anything as large as a car part-for-part? I understand they make cars that look like Western cars, but under the hood they are completely different. I wouldn’t be at all surprised if they came out with the Model S ‘Petrol Edition’.

A lot of the parts in every car, produced anywhere in the world, are shared with other models from other manufacturers. That's perfectly normal. Like e.g. "german", "french" or "american" cars, many "chinese" cars are made up mostly of german, french etc. parts. Well, german-engineered, french-engineered etc., beccause the parts are often produced relatively closely to the manufacturer's assembly plant. (Which is why BMW and it's american suppliers are biggest exporter of the fruits of automotive labor in the US.)

Chinese manufacturers are just more blatant in their copying of western designs. Western manufacturers tend to be way subtle about taking and reworking design cues. Though undeniably everyone will assimilate any popular design into their own design language.

I knew an engineer who used to work for a US company that made nuclear reactors. He had said that they sold a single reactor to someone in China, and only one. Several years later they found that they had made many identical copies of that model reactor, down to the size of the bolts.

>Even if they were well compensated the Chinese govt is very good at convincing people to leak or share IP with promises of huge cash rewards or career opportunities within national companies.

https://www.tesla.com/blog/all-our-patent-are-belong-you

This might not answer your point fully but in the article:

> China had previously circulated a proposal that would allow electric-car makers into the country without local partners if they were to locate in the so-called free-trade zones. The government set up the country’s first such zone in Shanghai in 2013, and has since approved 10 more around the country.

> Until now, foreign auto makers have built cars in China through joint ventures with local manufacturers. That allows them to avoid the 25% tariff on autos, but also forces them to split profits, and potentially share technology, with the local partner—something that has tripped up Tesla’s previous efforts to expand there.

My reading of this is, Tesla is okay with the tariff sanctions but doesn't want to share tech or profits with local partners. While that doesn't completely remove the potential IP problem, it does mitigate to a certain degree.

So by paying a 25% tariff, developing in china outside "free-trade" zones none of tesla technical manufacturing/design knowledge will be leaked to the government and knockoff competitors?

Good luck w/that.

One can only assume tesla expects some level of compromised proprietary secrets. Calculated risk on some level. Maye they see this as speeding up the inevitable.

Apparently they figure this risk is outweighed by the benefit of employing a manufacturing powerhouse which surpasses their US productions.

Intel has a big assembly site there (Chengdu, China) but fabs are still in the US, Israel, Ireland.

I wonder what Trump has to say about this move by Elon.

I believe Intel tests in Chengdu, they don't need final assembly of CPUs.

Intel also has an Asian fab in Singapore, I think.

They have a Fab (fab 68) in Dalian China for their 65nn process node on 300mm wafers, and an assembly/test site in Chengdu.

https://en.m.wikipedia.org/wiki/List_of_Intel_manufacturing_...

Ah, ya, and Singapore was just flash (did they fab there before), and that is just Micron now to boot.

At 65nm, they aren't fabbing CPU there, probably just supporting chips.

It puzzles me why Intel Chinese fabs are located in such middle of nowhere where their logistics costs will be sky high

As far as I know (which is admittedly very little), Intel's fabs require massive amounts of stable electricity and clean water. Maybe proximity to such resources is their driver in this case.

Huh?

Chengdu doesn't have a fab and is hardly in the middle of nowhere. Normal logistic costs.

Dalian is in a highly industrialized liaoning province, again highly populated and lots of resources. Again, normal logistic costs.

If they put it in the middle of gansu or qinghai or maybe Northern Yunnan or southern Sichuan (pretty much the Tibetan plateau), that would be the middle of nowhere.

None of the "magic smoke" in those chips is made in China. The "secret sauce" is all done in the US, in Oregon and Arizona. The US turns raw silicon into wafers full of chips. The plants in China, as far as I personally understand, are doing the work of cutting the wafers up, and connecting to mini-PCB boards. They are doing the labor-intensive part of the production, and nothing of the understanding-intensive part of engineering.

On a more positive note, this is largely how the 3rd-party repair industry for Apple's and other's electronic products (laptops, TVs, etc.) is fed --- leaked schematics and other documentation is very useful not just for cloning but for repair.

I thought Tesla (unlike SpaceX, due to ITAR/etc.) was pretty open with their technology. I assume Elon would be happy if all of the non-EVs in China copied Tesla. OTOH, I think the Chinese market actually already has better EVs for 90% of the Chinese market, and the market for Tesla is the high-end prestige market which wouldn't be so affected by copying (they don't copy BMWs today)

https://www.tesla.com/blog/all-our-patent-are-belong-you

Cheaper for sure, but there is always a price (burning alive in case of BYD e6 ).

Sounds like FUD. Is there anything more than the single case reported on Wikipedia?

I believe this only applies to charging tech so that the whole industry is standardized for charging stations. I don't think Tesla shares any of their chemistry, power management, and other high value IP.

As far as I know, it is all patents. Here is another source, as linked in my above post:

https://www.wired.com/2014/06/tesla-just-gave-all-its-patent...

From the article:

> Tesla CEO Elon Musk announced today that his company will not "initiate patent lawsuits against anyone who, in good faith, wants to use our technology."

The question really is - what defines "good faith" for Musk and Tesla.

Additionally, I am no patent expert but it will be interesting to see licensing terms, if any. Specially after what happened with React and Facebook.

The link in another response to me has a link to a clarification video from Musk. I didn't watch it, as the text was adequate. It looks like no licensing is required and that they've been legally dumped into the public domain in a binding fashion - maybe. That's not actually ever been ruled on in a court, from what I can find via Google.

That post suggests no company legal team would allow it. The article thinks Apple might use it, as an example of a user.

I am no expert, so I'll defer to others.

I would like to take a moment to recognize that Tesla is apparently run by 90's meme lords. Check the url on that link. all-our-patent-are-belong-to-you. This pleases me greatly.

I just want to point out the grammatical error here in the title. I mean I get it - he's busy but this is a core concept and it's in the title.

You are unfamiliar with the “All Your Base Are Belong To Us” meme which the title references.

Someone must have set him up the bomb.

What technologies are there at the production phase?

Powerful electric motors and big battery == fast and long distance.

All software will be developed in-house and pre-loaded into dash modules.

This should be a boon for China's air quality if they start to mandate EVs and ban fossil fuel vehicles. They are suffering from major, major pollution that makes 70's LAX smog look like child's play

I'm not sure EVs are going to make a difference unless they move from coal plants to something else.

Coal plants are more efficient than internal combustion engines.

At generating energy? Yes. At emissions per watt? Not necessarily. Coal is much, much dirtier fuel than gasoline.

Metropolitan emissions per mile would be the important metric, since gasoline in cars is at most ~30% efficient, and coal plants can be built away from the city.

Modern Chinese coal plants are also more efficient than older US plants. I think after the next year or so of closures of old plants in China that China's least efficient plant will be better than the most efficient one in the US

Plus they are built outside cities, so it moves the pollution to a less population dense area

As is customary in these discussions, the "Long Tailpipe" falacy has been raised again.

https://en.wikipedia.org/wiki/The_long_tailpipe

http://www.casteyanqui.com/ev/longtailpipe/

Mr Musk's criticism of it is in here https://www.tesla.com/blog/secret-tesla-motors-master-plan-j... Section starting "Power Plant Emissions aka “The Long Tailpipe”"

Taking that Wikipedia link at face value, an EV running on Chinese power has emissions equivalent to a 30 mpg vehicle, ie. 7.8l/100km.

Maybe today, but not where they're heading

http://www.bbc.co.uk/news/business-40341833

https://www.bloomberg.com/news/articles/2017-07-19/china-add...

https://www.euractiv.com/section/energy/news/china-eclipses-...

Sure. And that's great. But even at a record pace, that's (according to the articles) 1% of their total electrical energy covered by solar. Of course, solar is a tiny part of China's total regenerative capability; both hydro and wind power make up much more.

I don't have the numbers for China, but in Germany the power usage for transportation[0] is roughly as large as the electrical power. So whatever progress they're making, they need double of that if they want to power their cars.

[0] I don't remember off hand whether air and water are included

People need to understand that 25% import tax is a feature not a bug, it allows Tesla to be classified as imported cars, separating itself from a long list of American/German cars made in China with a local partner. There are huge demand for such "imported" cars. Look at Porsche, every single one of its cars are imported into China with stupidly high taxes, yet 1/3 of its global sales are in China, you need to wait 3-6 months to get the most popular models (Macan and Cayenne).

I've heard that it's the same with Volvo. Volvo Cars is a Chinese owned company with manufacturing in China, but upper middle class Chinese happily pay a hefty premium for an imported Volvo made in Sweden.

Someone told me the same applies in Thailand. Something about owning a Porsche (etc) showed more than normal wealth because you know they pay a huge extra on top of the already high price.

That was the gist of it anyway.

Can a "cultural translator" explain why the Chinese consumer market is so highly susceptible to Western marketing of import brand marks, for highly-specific products, when otherwise they appear strongly nationalistic?

This doesn't seem to broadly carry over into all products. My gut-feel impressions from visiting China: Cars, yes. Phones, no. Scotch, yes. Watches, no. Clothes, no. Houses, no. Household appliances, no. Bottled water, no.

Americans have their yes/no list, various European citizens have theirs, and so on. And there are sub-groups (like I'm aware of a market for ultra-premium watches with 5-figure+ USD price tags among some hedge fund types), but I'm interested in characterizations at a broad national level. I'm curious to hear from Chinese or Chinese culture-fluent what factors in their opinions went into the make up the Chinese national variant of this list.

I'd just like to modify your list in that I think wealthy Chinese consumers are highly susceptible to certain designer clothing and accessories, ala Gucci, Louis Vuitton, etc.

I think everything else can be explained by a sort of clash between utilitarianism and a desire for status symbols. Tools that can be readily copied in China and produced much more cheaply are sold as that: tools. So phones, watches, appliances, etc. Cars and clothes can also be readily copied, but even in the west they show more status than the other things listed. So when it comes time to copy them, it's more apparent when you have a Chinese knockoff vs. an "original".

Scotch is hard to copy.

1) Status 2) price+quality 3) localization 4) regulation 5) not necessarily in this order

For instance take a look at Xiaomi phones. They are better in every aspect than any western phone you could find in the < 500$ price range.

Western cars are designed for regulations that don't exist in China, think of emission controls and safety. Local manufacturers don't bother with that. Expect any western car to be overpriced and inappropriate for the china market.

Truly luxury brands like Apple and Porsche makes it because of status.

not sure whether Apple is a still a status thing, I mean just look at their completely failed launch of iPhone 8 and the huge discount you can get for that phone.

it is more like a phone designed for old people.

That's probably why the wealthy are buying Western cars, they're safer. Hard to be rich when you get crumpled like a tincan in a locally produced vehicle

I think a better comparison is whether the Chinese prefer a VW Jetta built in China as part of the FAW-VW joint venture or a German built one.

Luxury cars will always typically be built in the country of origin as they're not mass market.

Imported typically means it was sold in a foreign market first before the U.S. Not the case here with Tesla. People know them as an American company, just like Apple is an American company that imports products made in China.

China doesn't believe in IP. Tesla should look within 1-2 years of startup of a Chinese plant for there to be other Chinese plants producing the exact same parts, but not for Tesla. If Tesla puts its "magic smoke" into that factory, they have given it away to multiple competitors.

That would however be in line with Tesla's stated mission:

The Mission of Tesla. Our goal when we created Tesla a decade ago was the same as it is today: to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible.

Isn't that what Elon Musk wants though?

Could this be made difficult by obfuscating some sensitive part production through US made black box that stay controlled at the factory. No tesla black box, no nice tesla part oob, head start kept ?

This stinks of my cynicism, but I hope Tesla doesn't mind competing with unbranded, unlicensed Chinese copies of Tesla-designed vehicles.

Based on their blanket grant of royalty-free patent licenses, I wouldn't think so, but that might just be the sort of idealism you see when a competitor doesn't have you up against the ropes, pummeling the snot out of you. It's one thing to go read the patents and maybe add the parts you understand to your product. It's another thing entirely to be able to observe an entire functioning assembly line and copy it down to the millimeter.

And that is something that will happen to any factory Tesla sets up on mainland China. Then they start chopping off the more expensive bits. Tesla must be betting that the x% of the Chinese market that cares about brand and can also afford to pay for genuine goods would buy a real Tesla instead of a nigh-identical knockoff, at rates high enough to be significant against the 25% tariff. That kind of financial math is beyond my expertise, though.

Wonder how this will impact the model 3 backlog. Many of the Tesla fans have bought into the US made, green, and disruptive angles - in various levels of importance.

Will be interesting to watch how the backlog develops with this change. Could be quite significant.

Also if we factor in the layoffs last week in California and now this move how long until Trump takes a punch on Twitter as Tesla?

now let's see if chinese made teslas will be of higher quality than U.S. made units. The bar is set pretty low right now to surpass U.S. Tesla build quality.

Why are there still import tariffs in the US?

Because Americans prefer to vote for politicians who take payments from industry groups in exchange for setting tariffs that protect them from international competition.

Are there car-producing countries that don't have import tariffs?

What

Edit: The parent comment was orignally asking about linking to non-paywalled secondary sources.

In the HN guidelines https://news.ycombinator.com/newsguidelines.html

>Please submit the original source. If a post reports on something found on another site, submit the latter.

Also, on paywalls https://news.ycombinator.com/item?id=10178989

So knowledge should be trapped behind a paywall?

We've been through this countless times, which is why it's in the FAQ. Paywalls suck, but HN would suck worse to do without NYT, WSJ, Economist, and New Yorker articles, to name a few. It's the lesser of two evils and it's off-topic to endlessly litigate this.

Bye bye US Government subsidies.

To be read as the beginning of the end of Tesla factories in the US.

I doubt Tesla will give up on their U.S. factory, unless the company ever enters dire financial trouble. There have been (and still are) major auto makers with factories in the U.S. It is to their advantage to operate more than one factory if ever there are labor issues, governmental issues, or even natural disasters that could stop production.

I suspect US will be reserved for high end S/X models, with the model 3 likely majorily in China.

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