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Tesla needs China, but China also needs Tesla

a man walks between two Tesla vehicles in the company's Shanghai showroom.
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In China’s business circles, executives talk admiringly of a particular type of firm they refer to as a “catfish.” These companies, voracious competitors in crowded markets, force rivals to improve their performance or perish. In China’s hyper-competitive electric vehicle (EV) market, the metaphor of an aggressive fish gobbling up its lesser rivals until only the strongest remain is an apt one.

China has around 450 EV manufacturers, according to the Center for Strategic and International Studies, a Washington-based think tank. Only a handful of those companies actually sell cars, as few players in the capital-intensive industry have raised the money needed to build a vehicle. In the US, only three major car companies remain, the product of waves of painful consolidation during the 20th century that eliminated hundreds of automakers.

That’s why China’s government officials have rolled out the red carpet for Tesla: they see the American automaker as just the catfish they need to thin out the EV market. Beijing has showered Tesla with perks including lighting fast approval for its Shanghai factory. In 2019, Chinese premier Li Keqiang offered Tesla CEO Elon Musk China’s equivalent of a permanent resident permit; Tesla also became the first foreign car marker to set up a wholly-owned factory without a Chinese partner.

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