When Elon Musk unveiled the first Chinese-made Teslas in Shanghai in 2020, he went off script and started dancing. Peeling off his jacket, he flung it across the stage in a partial striptease.
Mr. Musk had reason to celebrate. A few years earlier, with Tesla on the brink of failure, he had bet on China, which offered cheap parts and capable workers — and which needed Tesla as an anchor to jump-start its fledgling electric vehicle industry.
For Chinese leaders, the prize was a Tesla factory on domestic soil. Mr. Musk would build one in Shanghai that would become a flagship, accounting for over half of Tesla’s global deliveries and the bulk of its profits.
Mr. Musk initially seemed to have the upper hand in the relationship, securing concessions from China that were rarely offered to foreign businesspeople. But in a stark shift, Tesla is now increasingly in trouble and losing its edge over Chinese competitors in the very market he helped create. Tesla’s China pivot has also tethered Mr. Musk to Beijing in a way that is drawing scrutiny from U.S. policymakers.
Interviews with former Tesla employees, diplomats and policymakers reveal how Mr. Musk built an unusually symbiotic relationship with Beijing, profiting from the Chinese government’s largess even as he reaped subsidies in the United States.
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