Trouble for Tesla: Chinese regulators raise questions over the quality and safety of Tesla cars

March 21, 2021


2 min read

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What's going on here?

Chinese regulators have started to investigate Tesla over quality and safety issues.  

What does this mean?

Tesla has been called on by Chinese regulators to answer questions about abnormal acceleration and battery fires of its Shanghai-made Model 3 cars following consumer complaints about the electric-car maker. The State Administration for Market Regulation, China’s top market regulator and four other regulators have urged Tesla to strictly operate according to China’s laws and regulations and to respect consumer rights. 

In response, Tesla Shanghai has announced that it will investigate consumer complaints as well as strengthen its self-inspection and internal management. Tesla Shanghai also said it “sincerely accepted the guidance of government departments” and “will strictly abide by Chinese laws and regulations and always respect consumer rights.”

What's the big picture effect?

China’s commitment to reducing air pollution has cemented its position as the biggest electric car market in the world and its push for the automobile industry to produce more electric vehicles has favoured Tesla so far. In 2017, Tesla became the first foreign auto company to operate a wholly-owned plant in China. When it first negotiated terms for the construction of its Shanghai Gigafactory, the laws at that time required foreign car manufacturers to partner with Chinese firms in order to set up a local business. In 2018, these joint venture restrictions were eliminated for companies manufacturing new energy vehicles. 

The regulatory pressure now exerted, signals not only Tesla’s failings to address consumer law issues, but also the shifting market forces within the Chinese auto market. Whilst Tesla has enjoyed strong government support over the past 4 years, local Chinese electric car brands like Nio, Geely and Xpeng threaten to usurp Tesla’s market dominance.

The joint venture policy allowed China to retain a stable manufacturing base whilst reaping the rewards of partnering with foreign car manufacturers and thereby increasing domestic manufacturing skills and knowledge. The new PRC Foreign Investment Law (FIL) came into force in 2020 and requires companies to store all data within China, thus not allowing the transfer to the home country’s office. This means that whilst the elimination of the joint venture policy may be seen as favouring foreign companies, other requirements may in fact reflect a shift in favour of local manufacturers. Although Tesla is considered to be a company favoured by China, these developments indicate that Tesla will need to step up its inspection and management in order to adhere to Chinese regulations or risk losing its biggest market.

Report written by Sofija Belajcic

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