On the night of April 27th, Tesla CEO Elon Musk boarded a private Gulfstream G550 jet bound for Beijing.
A cloud of concern loomed over him—Tesla’s global sales growth had slowed down, accompanied by the departure of Zachary Kirkhorn, CFO for over 10 years, and Drew Baglino, Senior Vice President of Power Engineering. Additionally, this month, Tesla announced layoffs of over 10% of its workforce globally, affecting tens of thousands of employees.
The sales slump needed urgent reversal. With progress slow at the Mexican factory and the Indian factory still out of reach, although competitors in the Chinese market were fierce, Tesla’s sales in China accounted for one-third of its global sales, with the Shanghai factory contributing nearly half of Tesla’s capacity. Musk undoubtedly had found an emergency solution to rescue the current predicament.
36Kr learned that Lars Moravy, Vice President of Vehicle Engineering, and Zhu Xiaotong, Senior Vice President of Automotive Business, were among those traveling to China with Musk. Lars, believed by Tesla employees to be the successor to Drew Baglino, and Zhu Xiaotong were clearly Musk’s right-hand men. Lars headed to the Shanghai factory while Musk remained in Beijing.
Most projects were progressing smoothly. On the day of Musk’s visit to China, Tesla’s Model 3 and Model Y models passed four compliance requirements for automotive data security, removing restrictions on their parking and driving bans. This provided the basic road pass for FSD to be widely applied in the Chinese market.
Subsequently, news of Tesla’s imminent launch of FSD in China spread rapidly, and on April 29th before the U.S. stock market opened, Tesla’s stock price surged over 12%.
This was a rare stock price increase for Tesla this year. Over the past three months, Tesla’s stock price had fallen by over 40%, with its market value dropping to as low as $468.323 billion.
In 2018, Tesla faced a production hell. After Musk’s visit to China, the Tesla Shanghai Gigafactory was completed and put into operation in just 10 months, helping Tesla emerge from its slump. Currently, Tesla’s situation is similar to six years ago. This time, can Tesla once again create a miracle?
Preparation for FSD Entry into China
Tesla is no longer just an electric vehicle company but also an AI company. Driving Tesla’s rapid AI technology development are FSD (Full Self-Driving) and other technologies like humanoid robots.
On the day of his arrival in China on April 28th, Musk announced on social media that Tesla would invest around $10 billion in AI training and inference this year, with the inference part mainly for cars. “Any company that does not spend at least $10 billion a year on AI training and inference, or is not efficient, cannot compete in the market.”
However, the more massive the investment, the more Tesla desires to profit from AI technology. To promote FSD, in March of this year, Musk also required users to experience the FSD (Supervised) feature when test driving. In addition, Tesla also launched a one-month free trial of FSD for millions of users in North America.
With over 1.7 million Tesla owners in China, the Chinese market is a crucial one for FSD. Tesla has been planning for the implementation of FSD in China.
Collaboration with Baidu’s mapping business is a crucial breakthrough for FSD’s entry into China. According to sources familiar with the matter, Tesla currently has three collaborations with Baidu in the mapping business: in-car navigation maps, advanced driver assistance maps, and compliance cloud.
“Baidu has provided Tesla with the version numbers for both navigation maps and advanced driver assistance maps,” said an insider.
Tesla owners are familiar with Baidu’s in-car navigation maps. Since January 2020, Tesla has installed Baidu navigation maps in its vehicle systems.
In addition to navigation maps, Tesla’s collaboration with Baidu in advanced driver assistance maps and compliance cloud is more critical, facilitating the landing of FSD in China.
Previously, Tesla’s entry into China with FSD had faced significant compliance hurdles. According to a notice issued by the Ministry of Natural Resources in August 2022, intelligent connected vehicles equipped with sensors such as cameras and LiDAR that collect road data are considered surveying activities. Foreign-invested enterprises must entrust enterprises with surveying qualifications to conduct surveys and handle data.
In other words, as a foreign-invested enterprise, Tesla needs to collaborate with Chinese domestic companies with surveying qualifications—map providers—to implement intelligent vehicles. Baidu Maps is one of the 19 companies in China with Grade A mapping qualifications, meeting Tesla’s cooperation requirements.
An informed source told 36Kr that the cooperation reached between the two parties primarily involves “compliant processing of sensor data.” Specifically, with the Grade A surveying qualification of Baidu Maps, data collected by Tesla vehicle sensors needs to undergo data classification, coordinate conversion, and data desensitization on Baidu’s compliance cloud before flowing into the autonomous driving training process.
Another person close to Baidu Maps told 36Kr that the cooperation between the two parties began in December 2022, but prior to this, Tesla’s mass-produced vehicles had not yet passed the Chinese automotive data security requirements, and the compliance work between the two parties was limited to Tesla’s test vehicles, with a small scale.
The data processed by the mapping company will be used for FSD model training, among other things. According to 36Kr, Tesla’s related autonomous driving data center has already been established in Shanghai.
In addition, according to previous reports, Tesla has established data annotation teams and operation teams in China, and engineers have been sent from the U.S. headquarters for training, promoting the landing of FSD in the Chinese market.
With the preparations nearing completion, Tesla is expected to start the commercialization of autonomous driving in China. According to 36Kr, Tesla has over a million vehicles in China with FSD capabilities. However, it should be noted that if users want to use Tesla’s FSD function, they need to pay an additional fee of 64,000 RMB.
This price is not particularly appealing. On the contrary, amidst the fierce competition among domestic automakers in China, only Huawei’s high-end intelligent driving has adopted a user charging model, while the intelligent driving functions of other automakers are generally still free for users.
Tesla is also aware of the low willingness of users to pay for FSD. To stimulate users, Tesla recently announced in the United States that the monthly subscription price for FSD would be reduced from $199 to $99 per month, and the one-time purchase price for FSD would also be reduced from $12,000 to $8,000. Considering the competitive environment in China, if Tesla’s FSD further lands in China, it may also adopt a monthly subscription model.
Having entered the Chinese electric vehicle market for ten years, Tesla, like a catfish, has stirred up the pattern and ecosystem of the Chinese automobile industry. The entry of FSD into China clears obstacles and marks another historic moment for Tesla in China.
However, the Chinese automobile market is vastly different from ten years ago, with players like Huawei, XPeng, and NIO eagerly preparing for intelligent driving. The industry competition is more intense, and players are more determined. It is difficult for Tesla’s FSD to be as smooth sailing as the entry of electric vehicles into China.
Tesla’s advantage may lie in the massive data support of millions of vehicles, ensuring that FSD’s start in China won’t be too slow.
FSD, Tesla’s Hope for Sales
The current Tesla is undergoing a new round of revenue crises, and FSD may be the key to changing its predicament in the short term.
On April 24th, Tesla released its Q1 2024 earnings report. During the reporting period, Tesla’s total revenue was $21.301 billion, a 9% decrease year-on-year, lower than the market’s expected $22.3 billion.
Of this, automotive revenue totaled $17.378 billion, a 13% decrease year-on-year, with a GAAP operating profit of $1.2 billion, a 56% decrease year-on-year. Correspondingly, total gross profit decreased by 18% to $3.696 billion.
The decline in sales is the main reason for Tesla’s revenue decline. The financial report data shows that in the first quarter of this year, Tesla produced 433,000 vehicles, a decrease of about 1.7% year-on-year, and delivered 387,000 vehicles, a decrease of about 8.3% year-on-year.
To change the situation of poor sales, Tesla is taking multiple measures.
On April 21st, Tesla China reduced the prices of all its products by 14,000 RMB, with the price of Model 3 reduced from 245,900 to 285,900 RMB to 231,900 to 271,900 RMB, and the price of Model Y reduced from 263,900 to 368,900 RMB to 249,900 to 354,900 RMB. In the U.S. market, Tesla also reduced the prices of all its products by $2,000.
However, since Tesla initiated multiple rounds of price cuts last year, its stimulative effect on sales has nearly worn off. Data from the China Passenger Car Association shows that in the first quarter of this year, Tesla China’s retail sales were 132,420 vehicles, a decrease of 3.6% year-on-year.
To increase sales, Musk announced the early production of low-priced models, from the second half of 2025 to the end of 2024 or 2025. Compared with new models that have not yet been put into production, the introduction of FSD, which is more mature, into the market may promote Tesla’s sales more quickly.
Data from the China Passenger Car Association shows that the penetration rate of L2 and above intelligent driving in the Chinese passenger car market reached 42.4% in 2023, and consumer acceptance of intelligent driving is gradually increasing.
In the view of an industry insider, China’s intelligent driving level has developed rapidly in recent years. Although Tesla’s FSD has lost its technological advantage upon entering China, its accumulation of technology and scenarios, coupled with the training of algorithms with Chinese data, will quickly bring FSD’s intelligent driving level to a leading position in China.
“After the entry of FSD, Tesla’s methodologies in autonomous driving and AI infrastructure may also be learned by Chinese companies,” the source said.
Currently, intelligent driving features are becoming one of the core selling points of new energy vehicles. Jin Yuzhi, CEO of Huawei’s Intelligent Car Solutions BU, has said that 70% of users choose Huawei’s high-end intelligent driving package. Ideal Auto has also stated multiple times that it will make intelligent driving technology a core strategic goal for the future.
The enhanced version of autonomous driving features sold by Tesla in China lags behind the top tier of Chinese intelligent driving, but with the introduction of FSD, Tesla can quickly make up for the gap in its high-end intelligent driving capabilities.
Most Chinese automakers’ high-end intelligent driving features rely on multi-sensor solutions such as LiDAR, with high hardware costs leading to the application of intelligent driving functions in models priced above 200,000 RMB.
Tesla’s low-cost pure vision intelligent driving solution allows FSD features to be flexibly applied to different-priced models. This means that if Tesla successfully launches low-priced models, combined with existing products, Tesla may realize the installation of high-end intelligent driving functions on models priced between 100,000 and 300,000 RMB. By combining low-priced models with high-end intelligent driving functions, Tesla will seize market share from Chinese competitors.
With these advantages, coupled with price reduction measures, Tesla, which still has room for price reduction despite the widespread losses among Chinese automakers, will have both technological and price advantages, further expanding its market share in the new energy vehicle market.
Today, it seems that Tesla’s entry into China with FSD is only one step away, which will determine whether Tesla can return to the top tier of sales and open its trump card against its competitors.