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Musk's China Charm Offensive Nets Tesla Tax Break Amid Trade War

Lisa Du

(Bloomberg) -- Elon Musk’s charm offensive in China appears to have paid off.

During a visit last week to the country, the billionaire chief executive officer of Tesla Inc. won a tax exemption for the electric-car maker, got to promote his ground-digging Boring Co. passion project and even drew praise on social media for his frugal food and accommodation choices -- he was spotted eating dumplings and staying at the Holiday Inn.

Musk began making headlines in China on Thursday, when he publicly sparred with Alibaba Group Holding Ltd. Chairman Jack Ma at the World Artificial Intelligence Conference in Shanghai, talking about various subjects ranging from the existence of aliens to the preservation of human consciousness and other visions of the future.

It was a wide-ranging -- and at times bizarre -- conversation, that went viral on social media.

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Musk also toured a factory Tesla is building in the country, its first outside of the U.S., and reportedly met China’s Transport Minister Li Xiaopeng on Friday. Later that day, China announced Tesla cars will be exempted from a 10% purchase tax, something typically reserved for domestic makers of electric vehicles.

Tesla currently imports all of the cars it sells in China but plans to start making the Model 3, its top-selling vehicle, at the new plant near Shanghai later this year. The company has had significant support from China for the factory, securing as much as $521 million in loans from local banks. Tesla shares jumped as much as 4.8% on Friday in the U.S., after news of the tax break.

China’s concession to one of America’s most high-profile companies stood out, coming amid heightened uncertainty over where the trade war between the two countries is headed. President Donald Trump ordered U.S. firms last month to immediately begin looking for alternatives to China, only to later suggest that tensions were cooling.

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On Sunday, the U.S. slapped tariffs on roughly $110 billion in Chinese imports, prompting China to retaliate by rolling out higher levies on about $75 billion of U.S. goods in stages.

China plans to resume a suspended extra 25% duty on U.S. cars on Dec. 15, with another 10% on top for some vehicles. With existing general duties on autos taken into account, the total tariff charged on U.S.-made cars would be as high as 50%.

That gives extra reason for Musk, who during his China trip praised the nation’s lead in global electric-car production, to begin manufacturing in the country soon while staying in the good graces of the Chinese government.

And although he didn’t get to announce the launch of Boring Co. in China during this trip -- as he indicated he would in August in a tweet -- Musk got to pitch his ideas to some local heavyweights. He met XiaoYaqing, head of China’s State Administration for Market Regulation, and got to share his vision of the project before he left.

But not before trying some of the local delicacies. The billionaire, who has his share of fans in China, was spotted waiting in line with his team to order and dine at a local restaurant, where an order of six dumplings costs 6 yuan (84 U.S. cents).

--With assistance from Chunying Zhang.

To contact the reporter on this story: Lisa Du in Tokyo at ldu31@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Shamim Adam

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