With the geopolitical landscape between the U.S. shifting even further as a result of the ongoing pandemic - and now potentially China's involvement in North Korea amidst rumors of Kim Jong Un's death - no one has really stepped back and taken the time to critically examine just how close Tesla has become to the Chinese government.
After all, the Chinese have been extremely accommodative to Musk, offering him land to place his factories and sweetheart loan deals with little or no interest. But anyone who has watched a couple of gangster movies in their day can tell you that nothing comes for free. And regardless of whether or not he deserves to be, Elon Musk is intimately involved in the U.S. space program and in several intelligence circles in the U.S.
And while Musk and his airhead followers seem to believe that the Chinese are simply excited about his plans to save the world, we remain skeptical about their intentions, and so do others. Such was the topic of a brand new article by well-known Tesla short seller Lawrence Fossi, also known as "Montana Skeptic", which appears to have gone semi-viral on Seeking Alpha, eliciting more than 800 comments in under 48 hours.
The article, called "Tesla's Transformation Into A Chinese Company Seems Unstoppable", seeking to critically examine why the Shanghai factory is a negative for Tesla, how Tesla's China operation could ultimately compete with Fremont and what the Chinese may ultimately gain from having Musk as an ally.
The article addresses the questions of:
Who calls the shots at Tesla Shanghai?
What are the interests of the Chinese leadership?
Whom does the Shanghai factory actually benefit?
How will Shanghai affect Tesla’s operations elsewhere?
When will Tesla’s security filings reflect the economic reality?
It lays out in detail the three key agreements between Tesla affiliates and the PRC/PRC banks, which appear to allow the Chinese government to take possession of the Tesla Shanghai site whenever they want.
The article asks critical questions about significant loans made to Tesla that mature this December, and also notes a provision in one loan that requires Tesla to deposit its operating revenue from the site into so-called Revenue Collection Accounts at Chinese banks. From there, they can only be used in limited fashion by Tesla until the loans have been paid off.
In the interim, China has given Tesla a "free factory" essentially, Skeptic notes, before reminding readers "And yet, of course, nothing is free. There's always a price to pay."
So what does China want, Skeptic asks. First, he notes they "want a large measure of influence over a business leader who, in much of the rest of the world, is widely admired and viewed as a shaper of public opinion."
They also want "Model Y production to begin in Shanghai as soon as possible. They want 100% local sourcing for all Tesla MIC parts, including battery cells so that Tesla Shanghai is not reliant on, and is independent of, the Rest of Tesla," he says. They also want the prestige of the Tesla brand.
From there, Skeptic begins to ask some obvious questions. With Musk deep in the pockets of the Chinese government, what more could they wind up wanting from Musk in a situation where Tesla because financially stressed and the Chinese government has the leverage?
One could go further, inquiring what else the Chinese PTB might want that goes beyond Tesla Shanghai. How about some SpaceX technology, or information about confidential U.S. plans entrusted to SpaceX? If such requests were made, what pressures would Musk face to comply?
Skeptic's article concludes by making the case that Tesla shareholders should be concerned about the company's Chinese operations, instead of jubilant. Given the volatile nature of the geopolitical landscape at the moment, we think he makes a very serious point that holds water.
"Tesla Shanghai profits will stay in China. Even under the best of circumstances, U.S. companies face many obstacles in repatriating profits earned in China," Skeptic argues. "China wants to be come less of an exporter of goods that are merely made in China, and more of an exporter of goods that are designed in China as well."
He makes the case that Fremont will ultimately shut down as more cars roll off the line in Shanghai and that Tesla may transform itself into a Chinese company in "just years". He also thinks there is a real chance that the Chinese goverment could usurp Tesla and "take it private" in a "manner altogether unpalatable to those accustomed to the U.S. rule of law."
"Tesla Shanghai already has begun taking oxygen from the Rest of Tesla, and the suffocation will become only worse," he concludes.
And with each coming capital raise that Tesla needs, specifically as it relates to China, we will start to get a glance at exactly which direction the Chinese government wants to take their newfound interest both the brand and its CEO.