Is Tesla China’s “Catfish”?

If you google “catfishing”, you get a plethora of results on its use as a term to describe fake online personas to dupe or scam people on social media and dating apps. A beautiful gal showing fake interest in unattractive guys for their money or a dashing guy showing fake interest in vulnerable ladies, also for their money.

So I was surprised (and confused) to hear the term used in a recent episode of the New York Times’s flagship podcast, The Daily, dramatically titled: “How Tesla Planted the Seeds for Its Own Potential Downfall”. The term “catfish” was used to describe Tesla and its Shanghai Gigafactory in 2019, as a ploy by the Chinese government to lure Elon Musk’s creation to fabricate a catalyst to spur the rest of China’s EV market, eventually spawning a domestic leader in BYD. 

It is a weird, tropey, and sadly misleading way to characterize a complex topic. 

Weird because “catfishing” has never been used in this way before – Tesla is a real company, not a fake online persona, and millions of consumers globally benefited from (not scammed by) its Shanghai factory, especially during the height of Covid. Tropey because the episode peddles a decades-old narrative where anything and everything that is advanced in China is the result of a maniacally conniving government stealing foreign companies’ technologies by luring them with its huge consumer base. While this narrative contains many kernels of truth, if we wind back the clock a decade when China is very behind in just about everything, a closer examination of the EV industry paints a different picture. Misleading because this poorly applied “catfishing” analogy draws a dangerously wrong conclusion for what the US and the West should do about its hollowing manufacturing capacity – resting on our laurels that whatever China has is stolen, and not introspectively examining what we should do to close a large and widening gap in advanced manufacturing.

Let’s unpack each element in more detail.

Tesla vs BYD

Tesla as the “catfish” is not only a weird use of the term, it belies history, especially when we add BYD into the picture. The Times would have you believe that before Tesla’s Shanghai factory came online in late 2019, China’s own EV makers were young and weak. Not true.

BYD’s foray into electric vehicles, as I outlined in a profile of its founder Wang Chuanfu, technically began before Musk co-founded Tesla. In January 2003, BYD bought a local carmaker called Qichuan Motors mostly for its licenses, so BYD could jump into the car market quickly. Tesla, on the other hand, was incorporated in July 2003, a few months after BYD bought Qichuan. And Musk didn’t get involved until February 2004, with his Series A investment into Tesla with his X-to-PayPal-to-eBay winnings (not X like Twitter, but X like payment, which merged with PayPal while Musk retained the domain name). 

BYD has been at it for at least as long as Tesla has, though definitely not as successful in the beginning. As a brandless battery maker before producing cars, BYD had no sense of brand, taste, or design initially. The company’s only advantage was low cost and volume production. In 2014, Tesla entered the Chinese market and was immediately sought after, despite its higher cost due partially to tariffs. It would have already had a “catfish effect” back then, if that was ever a thing. NIO and XPeng were both founded in 2014. Li Auto started in 2015. The crowding of the market in the mid-2010s was as much a challenge to BYD as it was to Tesla. 

If the Chinese government’s massive incentive offerings for Tesla in 2019 was an evil scheme to supercharge “Tesla the Catfish”, then it was a few years late and a high wire act that almost killed BYD. The increasingly popular storyline that BYD was favored to be the eventual winner simply holds no water. When Tesla EVs started rolling off of the Shanghai Gigafactory, which are locally produced thus no tariffs, BYD’s earnings fell by half, sold 20% less cars than the year before, and almost died. Wang Chuanfu and his crew went into survival mode.

From surviving to thriving, BYD benefited handsomely from China’s purchase subsidies for new energy vehicles (NEVs) that kicked into gear from 2020 to 2022. But it also had to innovate its core battery technology (Blade Battery) to improve distance and safety, revamp its design and software interface, and build a desirable brand to appeal to choosy Chinese consumers. In short, it had to deserve those purchase subsidies – money offered by the government to the people to buy NEVs, in much the same way that the Biden administration’s Inflation Reduction Act (IRA) subsidies currently work. 

A German think tank, the Kiel Institute, recently published a report that charted how much of the purchase subsidies BYD products received. 

At first glance, you would think that the government tilted the scale in BYD’s favor at Tesla’s expense, because it received by far the most purchase subsidies. That is certainly how media outlets like Bloomberg misleadingly reported this observation. But since you are smarter than Bloomberg and know how purchase subsidies work, this chart simply shows that when all the incentives are laid out, Chinese consumers overwhelmingly wanted to buy BYD, which pumped out the most number of models that qualify for the most tiers of subsidies with the most desirable product specs. Tesla actually came in second, which is not bad, while the remaining long tail of Chinese EV makers (some with European partners) divvied up the rest. If this subsidies program were only designed to favor national champions, you would think that EVs produced by Huawei – every western policymaker’s favorite Chinese national champion to kick around – would get some love. Yet, it is nowhere near the top.

This passage from the Kiel Institute’s report said it best:

“BYD received more subsidies than its largest competitors — Tesla and GAC but also compared to VW joint ventures SAIC-VW and FAW-VW — in every relevant subsidy rate class in 2022, reflecting the breadth and competitiveness of the BYD model range.”

It is, of course, too objective and nuanced a point of view to be widely cited. Nevertheless, facts are facts. What has been playing out in China’s EV industry is a combination of government steering and incentivizing, dynamic market competition, and some real technical ingenuity and cutthroat entrepreneurial drive from Wang Chuanfu, Elon Musk, William Li, He Xiaopeng, and others (Lei Jun is in the mix now too), not the old, tropey narrative of “forced joint venture then steal.”

Presumption of Malice

There is an interesting “presumption of malice” when judging everything related to China. Framing Tesla’s involvement there as a “catfish” and a victim of sorts is just the latest example. (I doubt Tesla regrets the choice; China made up 22% of its total revenue in 2023, and its Shanghai Gigafactory makes EVs for both China and Tesla’s other markets.)

Some of this presumption is deserved. When it comes to the Chinese government’s track record on freedom of expression, online censorship, corruption, women’s rights, and ethnic minority rights, it is hard to not notice tinges of malice. 

But applying this single stroke to paint every issue, especially something as unrelated and as complicated as making electric vehicles, risks generating the wrong conclusion and obscuring what the US, and increasingly the EU, ought to do to keep up with China in areas where China leads. As Glenn Luk’s epic X thread correctly points out, the US is much farther behind in manufacturing versus China, than China is behind the US in semiconductors and AI. Even though the latter sucks up more of the oxygen in our discourse, the former is what needs to be urgently and constructively discussed to come up with a plan for the US to catch up.

“Tesla the Catfish” could have sparked this discussion in the right way. 

For the sake of argument, if Tesla is such an effective catfish in pushing other EV makers to improve, why didn’t that happen in the US first, where Tesla was founded and was in the market for much longer? Ford and GM’s EV execution is still behind by many years – a sad state that warrants at least some introspection.

Again, for the sake of argument, let’s assume that China did have a “catfishing” scheme in 2019 to lure Tesla in, then strip it of all its technology, in order to bolster a domestic champion. Looking back, this scheme has worked out wonderfully for them! Then instead of talking about increasing tariffs further from the current 27.5% on Chinese cars or conducting investigations of dubiously-based national security threats from those cars, the most logical and pragmatic policy path ought to be: let’s do some “catfishing” too, let BYD into America, and push Ford and GM to compete and do better.

That is, of course, not the conclusion of the Times’s podcast, or any podcast on this topic, or any policy or public debate on this matter at all. 

Perhaps it should be.