Tesla’s Deals in China Prompt Concern from U.S House Committee Chair

After Tesla Inc. (TSLA.O) announced plans to open a Megapack battery factory in Shanghai on Monday, the chairman of a U.S. congressional committee on China expressed concern about Tesla's dependence on China.

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In a tweet on Sunday, Tesla announced plans to build a factory in Shanghai, as well as state media reported that the factory will initially manufacture 10,000 Megapack batteries a year, equal to around 40-gigawatt hours of energy storage, and complement a huge factory already producing electric vehicles in Shanghai.

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It has been reported that Republican Representative Mike Gallagher is looking to ask Tesla CEO Elon Musk about the balance he manages between the U.S. government's support for Tesla and the company's operations in China, in the House of Representatives.

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"This is something I am concerned about," Gallagher told Trade Algo when asked about the battery factory.

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"It appears that Tesla is entirely dependent upon two factors, A, the largesse of the federal government in terms of tax breaks, and B, the ability to access the Chinese market," Gallagher said.

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"I am curious as to how Elon Musk balances both of those. They have struck some pretty concerning deals there, so I am very curious to know how he juggles both of those," he said, adding that Musk's space flight venture SpaceX has by contrast been a "massive success story."

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There was no immediate response from Tesla when asked for comment on the remarks made by Gallagher.

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In a response to criticism that Musk received on Twitter on Sunday, Musk posted in a tweet that "Tesla is increasing production rapidly in Texas, California & Nevada."

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By the end of 2022, more than half of the global production of the automaker was going to be produced in the company's factory in Shanghai. The company generated almost one-fifth of its total revenue last year from sales in China, which accounted for $18.15 billion of Tesla's total sales last year.

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Despite growing tensions between China and the United States, Tesla's plans to open the Megapack factory now take place as Beijing seeks to woo foreign companies back to its country following a long period of COVID-19 lockdowns that have crippled its economy.

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Think About Subpoenas

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During his visit to California last week, Gallagher met with a number of technology and entertainment companies - including Apple (AAPL.O), Alphabet Inc.'s (GOOGL.O) Google, and Disney (DIS.N) - to discuss their business dealings in China.

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It has been the aim of the select committee created by Republican House Speaker Kevin McCarthy in January to convince American citizens of the importance of forcefully competing with China in certain strategic industries as well as to selectively decoupling the American and Chinese economies.

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Despite his hope to engage with Tesla and other companies going forward, Gallagher suggested he might need to take corporate executives to testify if his investigation into their ties to China were to be stalled.

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"When we get to a point where we are getting to the point where we are getting into the realm of lawyers getting involved with answers, that's when you start thinking about subpoenas," he stated.

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It has been reported by three sources in large U.S. companies, ranging from technology to retail, that they have been anxious about the possibility of their executives having to testify about their companies' operations in China, as well as the possibility of facing questions regarding whether their companies use supplies made in China with forced labor.

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As Gallagher mentioned, he was aware that executives from a wide range of companies may be hesitant to testify in the hearing.

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"If they want to do business in China, there are certain questions nobody wants to ask if they want to invest and do business there," he said. "The person could be a big asset manager on Wall Street. It could be a celebrity or a high-powered producer. It could even be the CEO of a big tech company."

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Despite Gallagher's refusal to answer questions about the topics of the committee's upcoming hearings, he did say that he was on a "tight timeline."

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There have been two hearings held by the committee so far, with the first focusing on the "existential" competition between the U.S. and China, and the second on the abuses of minority Muslims in western Xinjiang, conducted by the Chinese government.