Elon Musk: the ‘wild card’ in Trump’s dealings with China

Donald Trump is set to begin his second term in the White House surrounded by China hawks.

His pick for secretary of state, Marco Rubio, has campaigned against Chinese influence and championed crackdowns on tech groups such as Huawei. Michael Waltz, the incoming national security adviser, calls China an “existential threat”.

However, one of the president-elect’s closest advisers has a much more complicated relationship with China: Elon Musk.

The South Africa-born billionaire and self-styled “first buddy” to Trump has emerged as a potentially significant yet unpredictable player in the relationship between the world’s two superpowers.

Musk’s business empire sits across a minefield of possible conflicts on issues of national security, tech competition, supply chains and free speech, as well as the future of Taiwan. 

The world’s richest man has deep connections to top Chinese Communist party leaders, and is in the middle of lobbying Beijing over important decisions for his $1tn electric vehicle business, Tesla.

Tesla has received billions of dollars in cheap loans, subsidies and tax breaks from the Chinese government. The carmaker is highly dependent on its Shanghai factory, the biggest in its global network, for not only selling to the country of 1.4bn people but also exporting its China-made cars to other parts of the world. Musk’s Chinese suppliers, especially in batteries, are also crucial to the company’s global manufacturing operations, including in the US.

But the administration Musk is to join as efficiency tsar seems ready to follow through on Trump’s campaign threat of a sharp increase in tariffs on all Chinese imports into the US, a decision that could dramatically impact Tesla’s business.

Musk could potentially provide a “critical bridge” between China and the Trump administration, says Philippe Houchois, an analyst with US investment bank Jefferies.

There are already signs that Musk’s influence may extend to America’s relations abroad, such as his presence on a post-election phone call between Trump and Ukrainian leader Volodymyr Zelenskyy.

Given the stakes for Tesla, the entrepreneur might be expected to act as a “moderating influence” on Trump’s planned tariffs, Houchois adds — and “how much or [for] how long markets ignore potential conflicts of interests ranging from political responsibilities to governance and compensation, is unclear”.

There is clear evidence of political pressure over Musk’s potential conflicts. Two Democratic senators have sought a federal investigation into Musk’s reported communication with Russian leader Vladimir Putin, raising concern over Musk’s high-level security clearances and billions of dollars in US government funding.

While there is a long history of businessmen acting as middle men between Beijing and Washington, few, if any, have had more at stake than Musk. Other parts of his empire run directly into points of tension between the US and China. SpaceX, his commercial rocket and satellite business, has drawn sharp criticism from Chinese military analysts who see the company and its vast network of Starlink satellites as part of the American military’s expansion into space. And X, the social media platform, is banned in China. 

Yaqiu Wang, research director for China at Freedom House, a US-based advocacy group, warns that Beijing has become “very deft” at manipulating foreign business leaders — including leveraging their companies’ access to the country — to compel them to “toe” the Communist party line, she warns.

“Musk is not only vulnerable to Beijing’s pressure given his extensive business interests in China, he also seems to genuinely enjoy close relationships with China’s authoritarian leaders,” she says. “This dynamic creates ample opportunities for the CCP to influence Trump’s China policy.”

Five years ago, Musk secured funding for what was at the time Tesla’s most ambitious project, a factory building electric vehicles in a special free trade zone on Shanghai’s eastern outskirts.

The prospect of facilitating the loan sparked fierce competition among Chinese banks. Some lobbied the Ministry of Industry and Information Technology, one of Tesla’s regulators in Beijing, to be added to the list of approved lenders. From the bankers’ point of view, the deal was not only financially failproof, but it was also an opportunity to demonstrate alignment with Beijing’s supportive green industrial policy.

In the end, loans totalling nearly $1.4bn came from a consortium of some of the country’s biggest state-owned lenders: China Construction Bank, Agricultural Bank of China, Industrial and Commercial Bank of China and Shanghai Pudong Development Bank. The interest rate on the debt was pegged at 90 per cent of China’s one-year benchmark interest rate, a discount that state lenders usually offer to their best clients, almost always other Chinese groups. 

The special treatment went further. Musk successfully convinced CCP leaders including Li Qiang, then the Shanghai party boss and now China’s premier and number two ranked leader, that Tesla needed to own its China business outright. For the auto industry this marked an unprecedented change from Beijing, which had always required joint ventures between foreign and local Chinese carmakers.

“Everybody knew it was the number one project for Shanghai, even for China, that year,” says a Shanghai-based credit officer involved in the deal. “With full support from the government, there’s no way for us to record any losses. No deals are better than that.” 

The land for Tesla’s factory has been leased from the Shanghai government for 50 years. The company, which did not respond to questions from the FT, has not disclosed the price tag. In 2018, the Shanghai Municipal Bureau of Planning and Land Resources said a plot of land was leased for Rmb973mn ($145mn), well below market prices at the time. According to Tesla, the company has met requirements set by Shanghai to spend Rmb14bn on the plant by 2023 and received additional grant funding of $76mn from the city government the year before.

One Beijing-based government policy adviser described Tesla to the Financial Times as probably still one of the “most subsidised EV makers in China”. 

The relationship has been mutually beneficial.

For Musk, the Shanghai factory is Tesla’s biggest, producing millions of cars and delivering revenues of $54bn over the past three years — accounting for 23 per cent of its total sales. Tesla has also said its new adjacent factory, building battery packs for electricity storage, is on track to start production in the first quarter of 2025. 

Musk is very pro-China, always has been. The perception that China is trying to screw the US, that is not shared by Tesla

“He is very pro-China, always has been,” says one former senior Tesla executive who worked closely with Musk for more than a decade. “The perception that China is trying to screw the US, that is not shared by Tesla.” 

For China, the project delivers hundreds of millions in taxes annually, at a time of slowing economic growth. Tesla also paid back its chief loan in 2021.

But more importantly to Xi Jinping’s economic planners, the rapid delivery of Tesla’s high-tech factory helped turbocharge the nation’s nascent electric vehicle industry, both in terms of the local supply chain and popularising the EV among retail consumers. 

Chinese policymakers had “dreamed for 20 years” of a domestic auto industry but the “inflection point was Tesla’s launch in Shanghai”, says Bill Russo, the former head of Chrysler in China and founder of Shanghai-based consultancy Automobility. 

“Just like the iPhone unleashed a host of Chinese smartphone companies, the Tesla Model 3, initially, unleashed the Chinese EV wave,” Russo says.

Over the past five years, Tesla’s global operations have deepened their reliance on Chinese suppliers, whose scale, efficiency and levels of automation have become world-leading. 

With Trump warning of massive tariffs against imports from Mexico and all of America’s trading partners, Musk has already moved quickly to protect Tesla by ramping up production in the US and pausing plans to build a factory in Mexico, which would partly make cars for the US market. But even then his company remains deeply exposed to American protectionism. 

Tina Hou, who leads China auto research for Goldman Sachs, estimates that more than 90 per cent of Tesla’s suppliers for the Shanghai factory are Chinese and when Tesla builds factories overseas these suppliers increasingly “go out” with Tesla. According to Mexican officials, dozens of Tesla suppliers have set up operations in Mexico, including Chinese groups. Musk is also working with its Chinese battery supplier CATL for technology at Tesla’s Nevada battery factory.

In late April, Musk made his most recent China visit, meeting Premier Li and other leaders in Beijing, as part of an effort to ease concerns among Chinese regulators over the national security risk posed by cars that collect and process data related to Chinese drivers and their surroundings. 

Steve Orlins, president of the National Committee on US-China Relations, says one measure of Musk’s strong understanding of the Chinese system is the decision — following Musk’s April trip — to overturn a ban on the use of Teslas on Chinese government properties.

“How many US companies have succeeded in getting bans rescinded? Those guys, whether it’s Musk or his operating team, somebody gets the system. Because that, in my experience, is pretty rare and remarkable,” says Orlins. 

Still, the future success of Musk’s business in China hinges on obtaining — and maintaining — regulatory approval for his FSD platform, the company’s semi-autonomous driving software.

Tesla is hugely dependent on China for profitability and Musk has direct contact with the CCP leadership. It’s inevitable he will be a piece of the puzzle

Musk believes his pivot to autonomous driving and artificial intelligence could boost Tesla’s market valuation as high as $5tn, five times higher than today. But he is also racing against a clutch of rival Chinese carmakers and tech groups, from BYD, Xpeng and Nio to Baidu, Xiaomi and Huawei, who are all developing similar technologies. 

Now, given Musk’s newfound access to the White House, a key question, according to auto industry insiders, is whether Beijing could use Tesla as leverage when negotiating with Trump — both in terms of Tesla’s FSD approvals and access to supplies of key components. 

“Tesla is looking for a solution on FSD so that could be part of the discussions on tariffs: we give you FSD, you negotiate on tariffs,” says one analyst at a US brokerage, who asked not to be named.

An executive at a rival automaker adds: “Tesla is hugely dependent on China for profitability and Musk has direct contact with the CCP leadership. It’s inevitable that he will be a piece of the puzzle.” 

Among Chinese consumers, Tesla’s rapid global success coupled with an admiration for maverick entrepreneurship has garnered Musk a cult following, and the nickname “the Silicon Valley ironman”. He has met Xi, the powerful Chinese leader, at least twice.

Maye Musk, the billionaire’s modelling mother, has also built a strong public profile in China with more than half a million followers on Xiaohongshu, China’s Instagram-like platform.

And yet among defence officials in Beijing, Musk’s business empire poses several questions of national security, placing Musk in conflict with the absolute priority of Xi and his leadership. 

A January commentary published by two authors from the People’s Liberation Army’s premier research group, the Academy of Military Sciences’ War Research Institute, described SpaceX as having “a clear military focus” and “strategic intentions” that would help the US gain a competitive edge in the space arms race.

“Its high-density deployment severely threatens the security of other countries’ space assets and affects the normal operation of their satellites,” they said.

The researchers added: “Starshield satellites could undertake kamikaze-style attacks on spacecraft and be equipped with weapons payloads to carry out space strikes, posing threats to space security,” referring to the version of the Starlink satellite network that is devoted to American national security applications.

Musk told the FT in an interview in 2022 that Beijing has made clear its disapproval of his deployment of the Starlink network to help fortify the Ukrainian internet after the 2022 full-scale invasion.

There are also signs that Musk’s personal views clash with others in Trump’s close orbit who want the US to push back harder against Beijing’s increased military assertiveness, including over Taiwan.

In speeches and interviews over recent years Musk has talked about his strong understanding of Chinese policy and his expectation of looming conflict over democratic Taiwan, which the CCP claims as part of China.

“There will come a point in the not too distant future where China’s military strength in that region far exceeds US military strength in that region,” Musk told the All-In Summit held in Los Angeles last year. 

There will come a point in the not too distant future where China’s military strength in that region far exceeds US military strength

“And if one is to take China’s policy literally, and probably one should, then force will be used to incorporate Taiwan into China. This is what they’ve said. If there is not a diplomatic solution, there will be a solution by force,” he said at the time.

Musk, according to the former Tesla executive, is trying to reduce tensions between countries and not inflame them further, but “at the same time” has to protect his business. 

Tesla is more worried about Taiwan than tariffs, the former executive says, adding that Musk has been working to “mitigate” the impact of an embargo on China by rejigging his company’s supply chain away from Taiwan.

“That has been true since it became clear to Elon that Taiwan to China is like Ukraine is to Russia and [there is] nothing you can do to stop that inevitable outcome. Maybe that is cynical, but that is a geopolitical reality.”

Musk’s ownership of social media platform X raises further questions over the billionaire’s interactions with China and inconsistency on free speech. 

Wang, of Freedom House, says that Musk’s claim that he is a “free speech absolutist”, made when he bought the social media platform in 2022, has been proved a “complete sham” by his acceptance of Chinese censorship and attacks on critics.

She adds that despite “all the problems” with X, the platform is still used by people inside China as a way to circumvent the Chinese state’s draconian censorship and internet controls.  

“It’s unclear whether the Chinese government has requested account information of X users who express critical views of the CCP and whether X has handed over such information. Given Musk’s cosiness with Beijing, his lack of principle on free speech and privacy rights, his penchant for authoritarian rule, this should really be a concern,” Wang says. 

For Beijing, after years of ties with Washington at a historic low, the prospect of having an ally like Musk influencing the White House is a definite positive. 

Henry Huiyao Wang, a former senior government official and the founder and president of the Beijing-based Center for China and Globalization, says that while Beijing is “preparing for the worst” there remains hope that Trump, with the support of American billionaires like Musk, can be “more pragmatic” and US-China tensions can be dialled back.

Musk may also have to navigate pressure on his own China links from other corners of Washington. Rubio, for example, in August co-signed a letter alleging that CATL, Tesla’s main battery supplier in China and with whom it is working in the US, has “deep ties” to the CCP and the PLA and was actively involved in bolstering Beijing’s military ambitions — accusations that CATL has denied.  

Ultimately, when it comes to influencing Trump on China there will be a “jumble” of views competing for the president’s ear, says Andrew Gilholm, head of China analysis at consultancy Control Risks.

On the one hand, there will still be traditional Wall Street titans and tech leaders who are seen as Beijing-friendly and “don’t want to rock the boat with China”. And on the other hand, there are hawks, such as Rubio, who “are ideologically anti-China and want to hammer China on all fronts”. 

And then there is Musk. “Individuals will matter,” Gilholm says. “Musk is a wild card — his interests conflict.”

Additional reporting by Ding Wenjie and Joe Leahy in Beijing