After taking billions in subsidies, Elon Musk's Tesla is slowly moving jobs to China, risking the wrath of President Trump in the process.
Tesla (NASDAQ:TSLA) is off to a great start to the decade. The stock is making new all-time highs every day and currently sits at $469. With a market cap of over $84 billion, Elon Musk’s company has become the most valuable American automobile manufacturer ever.
This achievement is fascinating, considering that Tesla has never reported an annual profit in its 17-year existence and is highly unlikely to do so anytime soon.
Much of the appreciation in Tesla’s stock has come from the company’s progress in China. The speed with which Tesla built the multi-billion-dollar Gigafactory in Shanghai is commendable, and it has already started delivering cars in the area.
Although the Shanghai Gigafactory is just delivering cars in China, it could be a stepping stone to move the entire manufacturing process there. Moving manufacturing to China would be a good business decision on Tesla’s part. But if you’re a taxpayer living in the U.S. who doesn’t own Tesla shares, you should feel betrayed.
The ‘clean energy’ business gets a lot of support from the government and electric vehicle (EV) manufacturing is no exception. EV buyers get a federal tax credit of $7,500 that gets phased out as EV manufacturers sells 200,000 units. The credit reduces the upfront cost of EVs for the buyers.
EV manufacturers also gets various credits like Zero Emission Vehicle (ZEV) and Greenhouse Gas (GHG) that can be sold to auto companies that don’t make EVs.
U.S. taxpayers foot the bill for these freebies, and according to the LA Times, the government has spent almost $5 billion in subsidizing all of Elon Musk’s ventures. To make matters worse, Tesla has never paid any tax to the U.S. government. Since the EV-maker has never turned an annual profit, it hasn’t paid back any portion of the multi-billion-dollar subsidy.
As I said before, I think Tesla will soon try to move a lot of its production capacity to China. Elon Musk has already said that Tesla will be making more models in the Shanghai Gigafactory, and from a business perspective, it will be a good move for Tesla.
Since there are no labor laws, no excessive government intervention, cheap labor and real estate, moving jobs to China will reduce Tesla’s production cost.
The decision to move jobs to China won’t go over well with the Trump administration. Bringing manufacturing back to the U.S. and winning the trade war with China are pretty high on President Trump’s priority list. Seeing a company that has taken billions of dollars in subsidies from the U.S. government ship jobs to China won’t please President Trump, who already isn’t a fan on EVs.
To make matters worse, Tesla has also promised to pay the Chinese government $320 million per year in taxes. This promise will be seen by the Trump administration as a betrayal of U.S. taxpayers.
Angering the Trump administration is not something Elon Musk and Tesla can afford since the U.S. is still the company’s primary market. President Trump already delivered a deathblow to Tesla when he denied the extension of a federal tax credit. He can do more damage by banning the autopilot software, something that’s already gaining traction among U.S. politicians.