China Looks to Use Tesla FSD Rollout as Leverage in Trade Negotiations

There has been a lot of speculation over how Elon Musk’s close involvement in the new Trump administration could affect the fortunes of his vast business empire. On the one hand, President Trump could ease the regulatory environment on Tesla, and hand even more government contracts to SpaceX. Conversely, markets seen as favorable to the EV industry but hostile towards the new administration’s politics, included cost cuts spearheaded by Musk himself, are already showing signs of souring on Tesla.

We are now seeing another potentially adverse side effect as China considers using Tesla as a pawn in trade negotiations.

Tesla car sales were flat in 2024, and to maintain its astronomic valuation, Musk has bet the automaker’s entire future on autonomy, both in the form of self-driving cars and humanoid robots, seeing them as a much more lucrative opportunity than the low-margin traditional business of selling cars. He now spends most of Tesla’s earnings calls talking up a future in which autonomous fleets of “Cybercabs” will roam the streets and replace human drivers. The company has slowly been rolling out its Full-Self Driving (FSD) tech through an optional add-on for current Tesla owners, with plans to begin testing a fully autonomous taxi service in Austin sometime this year.

China is Tesla’s second biggest market, however, and the country has heretofore not allowed it to begin rolling out autonomous technology there. President Trump’s recent move to place 10% tariffs on goods exported from China has created an opportunity for the country to use the president’s confidant as leverage. From the Financial Times:

Chinese authorities are contemplating using the approval of Tesla’s autonomous-driving licence as a bargaining chip in trade negotiations with Trump, said two of the people with knowledge of the delay, adding that this was the main reason for the hold-up in granting the permit.

The approval could still come soon, depending on how trade negotiations developed, one of the people added. But another said that some people at the company believed a speedy consent was unlikely unless there was “a major breakthrough or concession” in trade talks.

In China, competitors like BYD have raced ahead of Tesla selling ultra-affordable EVs for the masses, meaning the country does not need it there. President Trump has a useful reason to support Musk—his super PAC war chest has helped the president wield power in the GOP attacking disloyal politicians, and Musk was the idea behind DOGE’s war on DEI and government elites that Trump feels have always been against him.

China does not currently allow Tesla to train on driving footage there, and the U.S. does not allow the company to train in China because of export restrictions. Musk said it has been trying to prepare itself for a rollout in the country instead by training its AI systems on publicly available videos of Chinese streets that it can access from the U.S.

Musk has promised full autonomy, in which passengers do not need to operate a vehicle at all, going back years, and has consistently missed his own deadlines. Even now, Musk is moving the goalposts by saying full autonomy will not be available to U.S. drivers this year, but rather they will be able to access a more limited rideshare service in fixed service areas like Austin. It is important to keep that in mind here. And we do not even know that Tesla can achieve full autonomy in the first place, regulatory approvals withstanding. It has not actually demonstrated the feat at scale without a human driver at the wheel like Waymo.

On another front, Musk has strangely been in favor of rolling back EV buyer incentives in the U.S. including tax credits that have benefited his company greatly. Cynically, critics believe he is supportive of the move because Tesla would be less adversely impacted than competitors like Rivian that are still far from profitability.

It is all Musk’s world, and we are just living it. How much of the next four years of policy moves will be attributable to his needs?