In an interview earlier this month, business tycoon Elon Musk pitched his “recommendation” for the China-Taiwan conflict, saying he would make Taiwan a special administrative region (SAR) like Hong Kong but with more “leniency.” Taiwan predictably responded by criticising Musk for catering “to the threat of the aggressor by sacrificing Taiwan’s independence, [and] completely ignoring the limitless ambitions of authoritarian rulers.”
Premier Su Tseng-chang retorted to state that Musk “doesn’t know much” about the island or cross-strait relations and speculated that his comments were aimed at pacifying China, which accounts for 30-50% of Tesla’s production. “Musk is a businessman. He has a big car factory in Shanghai and wants to promote his electric vehicles... a businessman may say this today and say that tomorrow,” he asserted.
Following this terse exchange, the island’s military announced that it will no longer buy any Tesla vehicles, citing privacy and security concerns. It denied that the move was in retaliation to Musk’s comments, claiming that its concerns were related to camera lenses on the inside and outside of the vehicle relaying image data back to the company’s headquarters in the United States (US).
#Taiwan this past weekend slammed #ElonMusk for threatening its democracy and national security after he proposed that the country be made into a special administrative zone like #HongKong in order to resolve the conflict with #China. Find out more!https://t.co/tdCZlmGgFe pic.twitter.com/34CdNwDWy3
— Statecraft (@statecraftdaily) October 15, 2022
The measure drew concern about the impact Musk’s increasing political ‘activism’ could have on his business empire, given that Taiwanese companies comprise around 75% of Tesla’s component supply chain. According to AmCham Taiwan, the powertrain, body electronics, telematics (e.g., cameras and monitors), battery, and charger of a “typical” Tesla model,” all heavily rely on Taiwanese suppliers. Moreover, certifying Tesla suppliers for safety and quality can take up to three to five years, which makes Tesla’s Taiwanese suppliers extremely hard to replace.
However, while it is clear that Musk needs Taiwan, can Taiwan truly afford to turn away his business?
Hsieh Lu-lin, a senior analyst at the Industrial Technology Research Institute’s Industrial Economics and Knowledge Center, argues that Musk has been equally important for the island, as Tesla’s unique demands have helped Taiwanese manufacturers gain an edge over other suppliers in the market.
Prior to Tesla’s entry into the Taiwanese market, manufacturers simply received orders and produced them. “But they now have to go a step further, helping clients score breakthroughs, such as how to use fewer resources while building more cars,” Hsieh says.
Elon Musk suggests handing Taiwan over to the Chinese government, immediately gets tax break from the Chinese government. pic.twitter.com/WZw9CIWn8r
— Matt Stoller (@matthewstoller) October 13, 2022
“Tesla has used non-traditional thinking to build cars and lead its supply chain. It encourages vendors to work with Tesla in researching car systems to see where they can be improved and refining those ideas to foster truly disruptive innovation,” the expert notes.
Excellence Optoelectronics, Tesla’s automotive light module supplier in Taiwan, has attested to the fact that the company’s technological demands have helped maximise Taiwanese suppliers’ potential and give them a global competitive advantage.
The company’s president, Fanny Huang, says that Tesla is particularly focused on power-saving LED car lights, a demand that has helped her company beat conventional automotive car light suppliers.
“Their (traditional suppliers’) strengths are production tools, lamp housings and plastic and metal parts, but they don’t have the expertise of power-saving technology,” she says.
#Taiwan's defence ministry said it will no longer buy #Tesla vehicles, after the company’s CEO, #ElonMusk, suggested that the self-governing island should reunify with #China. Learn more:https://t.co/qOMCcF0V1y#EV #TheBoringCompany #Nuralink #Musk #TaiwanStrait #Taipei
— Statecraft (@statecraftdaily) October 16, 2022
In contrast, Excellence Optoelectronics helps customers with the design of their products, including maximising their reliability, energy efficiency, and cost-effectiveness.
She adds that Tesla’s demands pushed her company to outpace manufacturers in South Korea or Japan. “If we were only 5% cheaper, they wouldn’t have given us an opportunity,” Huang recalls, adding, “So we demanded of ourselves that we lower our costs by 20%, improve our reliability by 20%, and reach 20% power savings, and be able to help clients solve problems and do design work together.”
However, as adept and innovative as Tesla’s requirements may have made its Taiwanese suppliers, they could be replaced with Chinese suppliers in due time.
The company has consistently increased its percentage of locally sourced parts for its Chinese-made cars. As of 2021, more than 90% of its Model 3 and Model Y parts are sourced from domestic companies, allowing Gigafactory Shanghai to play an even larger role in the company’s overall operations. This manufacturing process could be replicated for cars sold in other parts of the world as well.
A look inside @Tesla’s Gigafactory 3 in Shanghai, designed to produce 500,000 Model 3s per year, is a glimpse into the power of automation and innovation across all industries. pic.twitter.com/eOmPlUPntz
— Vala Afshar (@ValaAfshar) October 16, 2022
In order to counteract the possibility of being forced to do business with a company that is actively looking for alternative suppliers and whose owner has undermined Taiwan’s sovereignty, Taiwanese industry leaders argue that domestic producers should pursue their own electric car ambitions.
Roger Liang, the chairman of cable assembly and wire harness vendor Bizlink Holding Co., argues that “Because Taiwan’s electric car supply chain took off at about the same point as those in Europe and Japan, it has an opportunity to overtake them.” “Taiwan’s signal transmission technology and electric motors have competitive advantages, and it could start with special vehicles and vehicles used to move cargo. At the very least, they could first meet domestic demand,” he claims.
Moreover, Chang Chun Group’s CEO, Suhon Lin, has said the island already possesses the capability to develop cathode materials, anode materials, isolation film, and electrolytes lithium-ion batteries.
He feels that the industry would benefit even more with some assistance from the government. “The government should strengthen its support for the industry. Sales of electric scooters are growing faster in Taiwan that anywhere else in the world, and this is an opportunity that cannot be missed,” Lin asserts.
Nevertheless, while there is promise that Taiwan does not have to rely on Telsa to sustain its electronics industry, this would be an undoubted risk. Relations between Musk and Taipei appear to be coming to a head and Taiwan must now decide whether it is willing to forgive or ignore his eccentricities for the larger benefit of its economy, particularly as he considers pivoting to China, or if it must wield his comments on Taiwanese statehood to issue a firm warning on what constitutes a “red line” for business within its borders.