Tesla and Chinese Rivals May Sign Truce After EV Price War With Socialist Values Pledge

China's Foreign Minister Qin Gang, right, poses for photos with Tesla Ltd. CEO Elon Musk in Beijing, China, on May 30 2023. Ministry of Foreign Affairs of the People's Republic of China via AP

Tesla and its rival electric vehicle manufacturers in China signaled a truce after a months-long price war and agreed to a “socialist values” pledge.

Tesla CEO Elon Musk, who is also the owner of Twitter and SpaceX, and Chinese automaker CEOs, agreed to adhere to a “core socialist values” pledge and to compete fairly in China’s EV market after Beijing ordered the industry to rein in their conflict.

The car companies also said they would avoid “abnormal pricing,” which may signal an end to the 2023 price war that has disrupted the industry in China.

The automakers further pledged not to mislead consumers and vowed to help stabilize growth and avoid risk in China.

Ironically, Twitter happens to be banned in China, and the Tesla CEO was prohibited from using his own platform during the visit.

As an advocate of freedom of speech in the West, Musk drew much criticism from human rights groups over allegations of compliance with CCP censorship and his signing of the “socialist values” pledge.

CCP Issue EV Manufacturers’ Agreement

The four key terms in the joint agreement, which were translated by Bloomberg, read:

“Adhere to industry rules and regulations, regulate marketing activities, maintain fair competition and not disrupt fair competition with abnormal pricing.

“Pay attention to marketing and publicity methods, and not exaggerate or use false publicity to attract attention or gain new customers.

“Put quality first, and improve lives with high-quality products and services.

“Promote core socialist values, actively fulfill social responsibilities, and take on the heavy responsibility of maintaining steady growth, strengthening confidence and preventing risks.”

Beijing Calls for End to Auto Price War in China

The joint agreement came at the behest of the CCP’s Ministry of Industry and Information Technology (MIIT), which sent a letter to encourage a truce among EV industry leaders.

Executives from 16 auto manufacturers attended the signing ceremony at the China Auto Forum on July 6 in Shanghai to acknowledge and commit to the four terms laid out in the pledge, which are non-binding.

The main signatories included BYD, Nio, Xpeng, Geely and Chery Automobile, and Tesla.

The other firms involved included FAW Group Group Co., BAIC Group, JAC Motors, Dongfeng Motor Co., GAC Group, SAIC Motor Corp., Sinotruk, Great Wall Motor Co, and Chongqing Changan Automobile Co.

Tesla was the only foreign carmaker to sign the CCP pledge.

MIIT had directed the China Association of Automobile Manufacturers to bring the 16 companies together to sign the agreement, said the CCP’s MITT chief, Miao Wei, at the event in Shanghai.

Miao Changxing, a senior inspector at MIIT, said that China’s car industry needed to avoid “reckless” price-cutting, reported The Financial Times.

The pledge is an example of how Musk is attempting to navigate increasingly tense U.S.-China business relations as the two rival powers compete in the world’s biggest electric-vehicle market.

Tesla Cut Prices as Chinese Auto Market Slackened

The EV price war began after Tesla slashed prices on its Model 3 and Model Y cars last October in the face of rising domestic competition in China, causing other brands in the country to undertake their own steep discounts in early 2023 to attract customers as sales slowed.

In March, some models made at Tesla’s Shanghai plant were 14 percent cheaper than in 2022.

The Chinese market accounts for just under one-third of annual sales for Tesla, making it one of its most lucrative markets.

The weak demand for vehicles in China partly stemmed from the aftermath of the pandemic and due to forecasts that EV prices would start dropping after a recent buildup in inventory.

The resulting inventory buildup led to major EV discounts and exacerbated concerns in Beijing, which is attempting to promote EV use in rural areas to boost the domestic auto industry and expand consumer consumption.

The price cuts angered some customers who had already purchased vehicles in China, including disgruntled Tesla owners, reported The Straits Times.

Chinese Tesla owners made complaints at stores and distribution centers, with some even ransacking one of the company’s Experience Centers.

Tesla and its main Chinese rival, BYD, which is backed by another American billionaire, Warren Buffett, were at the forefront of the conflict by cutting prices by an average of 6 percent through the first five months of 2023.

Tesla and BYD, China’s biggest car brand, became the chief beneficiaries of the fight and boosted sales at the expense of smaller rivals and other foreign brands.

Both companies reported record sales in the second quarter of this year, reported The Financial Times.

Musk Makes More Deals With Beijing to Sell His Cars

However, there were already signs that the trend towards cuts were easing prior to the signing of the agreement last week, as EVs saw prices revised upward as sales regained momentum.

“The agreement comes at a time when the price war is already at the point of pause,” China Passenger Car Association Secretary General Cui Dongshu told Bloomberg.

Deliveries from Tesla’s Shanghai plant in June climbed almost 20 percent from a year earlier, reported Bloomberg.

Shipments from Chinese automakers such as BYD and Li Auto also jumped, and CCP officials estimate that new energy vehicle sales in June rose 30 percent from the same month in 2022.

Musk traveled to China in June to meet the CCP’s foreign, commerce and industry ministers, along with Robin Zeng, the Founder and Chairman of CATL, the world’s largest maker of electric vehicle batteries.

The meeting with CCP leaders may pave the way for Tesla to gain regulatory approval in China for self-driving features in its locally-made cars, say analysts.

In a separate video statement to the World Artificial Intelligence Conference in Shanghai on June 29, Musk predicted that the EV industry would have almost full self-driving capabilities by the end of the year.

Approval of the new features would give Tesla a major advantage over its competitors in the tough Chinese EV market.

Musk was also hopeful that the Chinese would improve their capabilities in artificial intelligence while at the same time calling for regulatory oversight of the new technology.

“As long as the Chinese people decide to do well in one thing, they will, including AI,” Musk said.

Meanwhile, Musk’s recent actions in China pointed a spotlight on attempts to restrict free speech, which have intensified in China and in the United States, under the Biden administration.

Yaqiu Wang, Senior China Researcher with Human Rights Watch, said that Musk’s signing of the pledge undermined his moral standing.

“Failing to comply with ‘core socialist values’ has been frequently used by authorities to punish speeches that are critical of the Chinese government,” she said.