https://www.barrons.com/articles/tesla-elon-musk-goes-to-china-at-vital-time-us-trade-tensions-51547146159
Elon Musk Goes to China at a Vital Time for Tesla and the U.S.
David Marino-Nachison
Jan. 10, 2019 1:51 pm ET
Photograph by Joe Raedle/Getty Images
As Apple 's (ticker: AAPL) Tim Cook was discussing China with Jim Cramer this week, Tesla 's (TSLA) Elon Musk was there, breaking ground on a manufacturing facility.
Musk's glad-handing was skillful enough that he was apparently offered permanent residency by the premier himself.
Elon Musk unveiled the first mile-long tunnel in Hawthorne, Calif. The tech entrepreneur says the system, simply called "loop," is a first step toward developing a high-speed network underground to eliminate traffic congestion. Photo: Pool/Getty Images
It isn't difficult to understand why. Tesla is opening a factory in China that represents an investment of billions of dollars and, the company hopes, the future sale of millions of the company's electric cars there. The factory is expected to begin production this year.
The backdrop of Musk's visit was hard not to notice: The U.S. and China this week wrapped up the latest round of talks investors hope will stabilize trade relations between the countries. What's next remains uncertain.
"We hope you can get a firm foothold and expand the market," Chinese Premier Li Keqiang told Musk, according to reports. "We hope your company can become an in-depth participant of China's opening and a promoter of the stability of China-U. S. relations."
As Tesla looks to take the next step toward becoming a global car maker—with China and Europe the next frontiers—international manufacturing is crucial. The Chinese market, despite near-term pressure and economic concerns, is seen as eager for more electric vehicle options.
There are also more immediate issues at play, since Tesla has cut prices in China to offset tariffs and keep its vehicles competitive with local options. In a Thursday note, Morgan Stanley analyst Adam Jonas wondered whether Musk's presence in China might have been in part meant to negotiate better terms for imports while the company develops local production.
"Tesla has proprietary electric vehicle and battery technology and is willing to transfer its valuable physical production assets to assemble its vehicles in a wholly owned plant in Shanghai," wrote Jonas, who has an Equal Weight rating and a $291 price target, below current prices, on the stock. "Tesla may have some negotiating power to secure more favorable (or less unfavorable) trading parameters for the import and sale of its electric vehicles in China while the plant is being ramped up."
Tesla didn't immediately respond to an emailed request for comment. Meanwhile, Jonas wrote, Musk's presence there at a crucial time was difficult to miss.
"Can Mr. Musk's 'EV Diplomacy' offer the bottom-up U.S. corporate leadership that could potentially catalyze an improvement in trade relations between the world's two largest economies? One of the most well-known U.S. CEOs physically traveled to China," wrote Jonas. "This alone, in our opinion, is notable given the current climate of elevated tensions."
Email David Marino-Nachison at david.marino-nachison@barrons.com. Follow him at @marinonachison and follow Barron's Next at @barronsnext.
As Apple's (ticker: AAPL) Tim Cook was discussing China with Jim Cramer this week, Tesla's (TSLA) Elon Musk was there, breaking ground on a manufacturing facility.