Self-driving Teslas can’t duck the US-China silicon curtain

By David Fickling

What’s the value of a good story? $82 billion, to judge by Tesla Inc.’s 15 per cent share price gain Monday.

That’s the effect of news that the company had won tentative approval to roll out its driver-support technology in China, following a surprise meeting Sunday with the Premier Li Qiang.

Trying to decipher the entrails of Elon Musk’s gnomic pronouncements is never an easy task. Is he planning to release a cut-price Model 2 sedan next, or a robotaxi? Is he in favor of action on climate change, or does he think it’s communism? Does he even care that much about making cars these days, when there is so much fun to be had posting memes and launching rockets?

The lightning visit to China at least clarifies the narrative on the last point, according to Morgan Stanley analyst Adam Jonas: “Even the smallest gesture of commitment (an unannounced trip to Beijing) has elevated meaning here, combating concerns over Musk’s commitment to Tesla.”

The difficulty comes when you dig beneath the vaporware of stories and ambitions, and look at what has actually changed for Tesla. It’s rather less than meets the eye.

You might not know it from the way Musk talks, but Tesla’s driver-assistance system — misleadingly, and dangerously, dubbed “Full Self-Driving” or FSD — has been falling behind the competition of late. Mercedes-Benz Group AG is already selling vehicles in the US that allow drivers to take their hands off the wheel and eyes off the road in low-risk conditions.

That’s known as Level 3 autonomous driving, a step beyond the Level 2 technology used by Tesla’s FSD. BMW AG has added the same feature to its new 7 Series saloons in Germany, while Honda Motor Co. released a small number of Level 3 cars as far back as 2021.

Alphabet Inc.’s Waymo is aiming a step further, with Level 4 self-driving that won’t even prompt passengers to take over in tricky circumstances. That’s put it well in advance of both Tesla and General Motors Co.’s Cruise, as my colleague Dave Lee wrote earlier this year.

This makes reports of a Tesla tie-up with Baidu Inc. perhaps the most interesting thing to come out of Musk’s trip. The Chinese search giant has been building an open platform for autonomous cars, and is running robotaxi pilot projects in Beijing, Wuhan and Chongqing. It’s not clear how deeply the collaboration will go, but Tesla’s best prospect of catching up on autonomous driving will require pooling expertise with rivals, rather than following its existing strategy of remaining in splendid isolation. The Baidu alliance might be a first step toward that.

Even so, it’s hard to find justification for Monday’s $82 billion share price pop. In America, FSD is a way of taking advantage of steadily improving consumer confidence and lackluster offerings from rivals to sell EVs for a significant premium to the sticker price. Conditions in China could scarcely be more different.

With sentiment still stuck around the pessimistic levels it hit during Shanghai’s 2022 lockdown, inflation barely in positive territory, and dozens of EV-makers bringing new models to market, the industry is engaged in a cutthroat price war. For the cost of a single Tesla Model 3, you could buy three of BYD Co.’s Seagull mini-hatchbacks, or instead splash out on Xiaomi Corp.’s SU7 sports car, which looks and drives like a Porsche. The Model Y is still holding on to its position as China’s best-selling car, but the race in Asia this year will be won by the cheapest hardware, not the most cutting-edge software.

Given geopolitical sensitivities around data privacy and national security, it’s a coup that Tesla has managed to clear Beijing’s requirements on FSD at all. Washington is investigating Chinese sensor technology in cars and just forced Bytedance Ltd. to divest its TikTok social network, and US social networks operated by Alphabet and Meta Platforms Inc. remain banned from China.

Even so, it will be challenging for Tesla’s machine-learning to translate any lessons picked up in China to other countries where it posts more than three-quarters of its revenue. With a Silicon Curtain descending between the US and China, Baidu is already cut off from the most advanced AI chips and having to deny reports that its chatbot is being used by the People’s Liberation Army.

There’s one darker risk, too. The best way to learn how to avoid accidents is to have accidents. There were 956 crashes and 29 fatalities between 2018 and 2023 in cars using Tesla’s autonomous technology, the National Highway Traffic Safety Administration reported recently.

That this toll has barely attracted adverse comment is a testament to Musk’s status, however tainted, as a modern American folk hero who moves fast and breaks things. Should self-driving American cars start killing people on the streets of Shenzhen and Changchun, Tesla might not be able to count on such a forgiving attitude.