Tesla's China Expansion Uncertain Amid Starlink Worries

Tesla's expansion plans for its Shanghai plant have been delayed, according to sources familiar with the situation. The data concerns that have arisen could put a stop to Tesla's growth ambitions in China.
The expansion, originally planned to start in the middle of the year, would have doubled the plant's capacity to around 2 million cars a year, said the people, who asked not to be identified because they are not authorized to speak publicly.
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Some central government officials in China have expressed concern about a US company with connections to Elon Musk's internet-from-space initiative Starlink having such a large presence in the country. While Tesla cars are not equipped with Starlink equipment, which would allow users to bypass China's Great Firewall, Beijing has become increasingly concerned about data security and social stability.
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Musk is the CEO of both Tesla and SpaceX, which began launching Starlink satellites in 2019. Tesla shares fell as much as 2% in early trading on Tuesday.
The delay in Tesla's price cuts coincides with growing public resentment toward the company at a time when tensions between Washington and Beijing are running high. Angry Tesla owners swarmed showrooms in China over the weekend to complain about missing out on another round of price cuts. Tesla cars also were banned from Chinese military complexes and housing compounds in early 2021 over concerns about sensitive data being collected by cameras built into the vehicles.
Tesla representatives have not yet responded to a request for comment. Representatives from China’s National Development and Reform Commission also did not respond to a faxed request for comment.
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Tesla's Shanghai plant is already up and running at full capacity, producing 1 million Model 3 sedans and Model Y sport utility vehicles annually. The third phase of construction, which would have involved a significant amount of additional work, has been scrapped.
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The future of phase three of Tesla's Shanghai factory could still change pending further guidance from senior central government officials, one of the people said. Tesla has the support of local Shanghai officials, the people said.
Tesla's Shanghai factory has become a key manufacturing center for the company, churning out over 710,000 cars in 2022, or around 52% of its worldwide output. However, consumer demand in China - the world's biggest car and electric-vehicle market - has been hit by slowing economic growth and the adherence to Covid Zero, which has resulted in months-long lockdowns and supply-chain disruptions.
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To combat that, Tesla has cut prices and kept incentives in place. Even so, deliveries slumped in December to around 56,000 units as production was temporarily suspended due to equipment upgrades and lackluster consumer demand. Local rival BYD Co. meanwhile shipped 111,939 battery-electric vehicles last month, which highlights the challenges Tesla faces in the market.
Tesla is looking to expand its operations in Asia, with plans to open showrooms in Thailand and potentially set up a factory in Indonesia. According to Bloomberg, the automaker is close to a preliminary deal that would see it produce up to 1 million cars a year in Indonesia. This would be a major boost for Tesla, whose business in China has been struggling as of late.