Could Tesla Be Trump’s Next Target after Ford and GM?


Sep. 11 2019, Updated 3:00 p.m. ET

President Trump has targeted Ford (F) and General Motors (GM) several times over the last few days. In this article, we’ll see whether Tesla (TSLA) could be next in Trump’s sights.

As one of Trump’s issues with automakers, he is trying to push his deal in favor of the California fuel economy deal. In July, Ford, Honda, Volkswagen, and BMW signed the California deal. As an Obama-era deal, this standard is stricter than the deal Trump is proposing.

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Trump targets Ford for embracing California fuel economy standard

Trump specifically targeted Ford, tweeting, “Henry Ford would be very disappointed if he saw his modern-day descendants wanting to build a much more expensive car.”

As a global warming skeptic, Trump has scrapped a variety of climate deals. In 2017, he also withdrew from Paris Agreement. Due to this action, Tesla CEO Elon Musk left Trump’s advisory council.

Trump wants automakers to choose his deal and is working hard to make automakers toe his line. In July, he called on automakers who have not signed the California deal—including GM, Toyota (TM), and Fiat Chrysler (FCAU)—to promote his deal.

Bringing manufacturing and jobs back to the US

Another issue Trump has with automakers is that they are moving production to China. Amid the trade war tensions, this is the last thing Trump wants to see from US-based automakers.

After last month’s escalation of the trade war between the US and China, Trump posted a controversial tweet on August 23 directed at US companies: “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing … your companies HOME and making your products in the USA.”

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Trump targets GM

On August 30, Trump specifically targeted GM for moving production to China. In this regard, he tweeted, “General Motors, which was once the Giant of Detroit, is now one of the smallest auto manufacturers there. They moved major plants to China, BEFORE I CAME INTO OFFICE. This was done despite the saving help given them by the USA. Now they should start moving back to America again?”

However, some market observers found a variety of factual issues with this tweet. After Trump’s tweet, CNBC cited industry data and officials, noting, “Many of the claims in the tweet against the Detroit automaker were misleading or inaccurate.”

For example, GM is still the largest US automaker based on car volumes, surpassing Fiat Chrysler and Ford. GM CEO Mary Barra met with Trump on September 5. However, details of the meeting were scarce.

Tesla’s China Gigafactory 

While Trump has been targeting GM and Ford for similar moves, it wouldn’t be surprising if he chooses to slam Tesla for its recent moves. Tesla is very close to opening a fully owned Gigafactory in China.

Currently, Tesla imports all the cars it sells in China from the US. After the opening of this factory, however, it should be able to produce its Model 3 vehicles domestically. Please read Could Tesla’s China Gigafactory Be Its Secret Weapon? for an in-depth discussion of Tesla’s China plans.

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Tesla’s advantages of producing in China

It makes economic sense for automakers to produce domestically in China if they want to operate profitably and sustainably there. With Tesla’s Gigafactory, not only would it be able to avoid a large part of the tariffs, but it could also produce the same cars that it produces in the US more economically.

In October 2018, Tesla said it was “operating at a 55% to 60% cost disadvantage compared to the exact same car locally produced in China.” Moreover, Tesla’s factory would be the first completely foreign-owned factory in the country.

Chinese authorities support Tesla’s China plans

Chinese authorities are making a concerted effort to provide support to Tesla’s investment in the country. On August 30, China announced that it would exempt cars made by Tesla from its 10% purchase tax.

This exemption usually applies to either domestic Chinese automakers or their joint ventures with foreign partners. Tesla is the only sole foreign automaker that received this exemption. Please read China Did for Tesla What Trump Didn’t for more information.

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This exemption could allow Tesla to pursue its goals in China. Plus, China would benefit, as it has ambitious plans for electric vehicles. Citing people familiar with the matter, Auto News reported on September 8 that China is mulling a mandate that 60% of the country’s auto sales comprise electric cars by 2035.

Tesla’s layoffs: What does Trump think?

Trump is currently sour on automakers, as they are laying off workers. He slammed GM after an August 29 Bloomberg report, which noted that GM was in third place in terms of UAW (United American Workers) employment.

Trump has taken pride in the resurgence of US auto manufacturing and auto jobs during his tenure, which might or might not be the case. So, any labor force reduction by auto companies has not gone down well with him.

In this respect, Tesla could take some of the responsibility. The company laid off about 7% of its full-time salaried employees in January.

In a January 18 post on Tesla’s official blog, Musk noted, “We unfortunately have no choice but to reduce full-time employee headcount by approximately 7% (we grew by 30% last year, which is more than we can support) and retain only the most critical temps and contractors. Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months.

Due to pressures on profitability, Tesla’s stock is trading down by about 30% year-to-date.


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