Over in Europe, the situation isn’t much brighter – and governments are desperate to stay one step ahead of popular discontent sparked by increasingly unaffordable energy. The result: A new era of bold government intervention in energy markets. This week, the European Commission outlined plans to collect over 140 billion USD from energy firms to shield households and businesses from eye-watering power bills through the winter. To come up with the funding, the EU proposes to cap excess revenues of non-gas electricity producers and levy a windfall tax on fossil fuel companies’ “extraordinary” profits. The EU is also proposing demand-side curbs, with a target of cutting electricity consumption at peak hours by 5 percent, and overall electricity demand by at least 10 percent through next spring. And there’s more extreme intervention underway at the nation-state level: The German government is reportedly in advanced talks to nationalize three gas firms to forestall a collapse of the country’s energy market.
Plus, as the EU reels from Russia’s weaponization of energy control, Moscow is launching cruise missiles at Ukraine’s electric grid, knocking out power and water to much of the Kharkiv region in what Kyiv describes as retaliation against its recent battlefield successes. Ukraine last weekend also had to shut down its Zaporizhzhia nuclear power station—the largest in Europe, providing about 20 percent of the country’s electricity—and won’t restart it until Russian forces leave the facility. Right when you thought the tides of the war were turning.
A pair of Tesla stories this week highlights the fundamental tensions to the EV maker’s presence in China – and its apparent conviction that those are just minor road bumps. China is a key source of material inputs, production, and revenue for Tesla. There, business is booming: Tesla sales in China hit an all-time record in June. But Tesla has also seen Beijing’s COVID-19 lockdowns crimp its sales and supply chains. And the company’s reliance on China could disqualify it from Inflation Reduction Act tax credits. Can Tesla square the circle? It certainly seems to think it can; that marginal tweaks are all it needs to have its cake and sell it too.
According to Reuters, Tesla is adjusting its China-based retail strategy for COVID-19 lockdowns, not by moving out of the country but by moving showrooms away from fancy malls in major cities, where COVID-19 restrictions have decimated traffic, to cheaper suburban locations where the firm can also offer more repair services. Meanwhile, further up the supply chain, Tesla is reportedly considering shifting battery-production capacity from Germany to the US to ensure it can qualify for US tax credits. But no signs that it will cut reliance on Chinese suppliers for those batteries.
This is the reality check that narratives about US-China decoupling need: Even amid geopolitical tension and COVID-19 ripple effects, priors about the value of China’s market are deeply engrained. Companies are used to playing both sides. They are also adept at finding loopholes. None of that will change overnight.