28 Feb THE WIRE CHINA：Tesla Tom

Media Source : THE WIRE CHINA
26 FEB 2023

Can Tom Zhu replicate Tesla’s China success abroad?

BY KATRINA NORTHROP

FEBRUARY 26, 2023

The most cited detail about Tom Zhu, the Tesla executive who runs the company’s China operations, is that he is extremely hard working — so much so that he slept at the company’s Shanghai Gigafactory during the Covid-19 lockdown to ensure that cars were still coming off the production line.
Zhu himself often references this; describing his team in China, he said, “We leave our families aside, and work day and night.” Nearly every person interviewed for this article also brought it up, including former employees who admire his in-the-trenches approach.
“If we were running on a battlefield,” says Leon Wu, a former Tesla China employee, “he would be fighting alongside the soldiers instead of sitting behind the front lines.”

Zhu’s boss, Elon Musk appreciates the work ethic as well. In China, he recently said, “There are a lot of super talented, hard working people… [who] won’t even leave the factory type of thing, whereas in America, people are trying to avoid going to work at all.”

Zhu’s dedication is largely credited for the company’s success in China — in 2022, nearly 20 percent of Tesla’s global revenue came from China — and indeed, he has accomplished Herculean tasks in the country: Tesla’s supercharger network of EV (electric vehicle) charging stations in China is now 10,000 strong, amounting to one quarter of the company’s superchargers globally, and the company’s Shanghai manufacturing base went from a “piece of muddy land growing watermelon,” as Zhu described it, to a factory that produces more than 60,000 cars a month. In August, the factory reached the milestone of 1 million cars produced, one third of the company’s total output.

Recognizing these achievements as well as the increasingly important role of China for the company, Tesla recently promoted Zhu. In January, Reuters reported that Zhu will take over Tesla’s U.S. assembly plants, while also managing its China operations. This will make him one of the most senior executives behind Musk, and there has even been speculation that Zhu could one day take over from Musk as chief executive of the world’s seventh most valuable company, with a market capitalization today of more than $600 billion.

But for such a prominent position at a company with a cult- like following, remarkably little is known about Zhu, whose Chinese name is Zhu Xiaotong. Beyond a Weibo account where he reposts Tesla content with emojis, Zhu has a scant online presence, even among Chinese-language sites, and he rarely gives interviews to the media. Tesla is also notoriously tight-lipped with the press, including declining to comment for this article.
Zhu’s reputation, then, revolves around his hard-working mythos, which serves as the perfect foil to Musk’s flamboyance, multi-tasking and controversy. Indeed, among industry analysts and those who know him, Zhu often inspires comparisons to Tim Cook at Apple: the steady hand charged with executing the vision of a mercurial genius.

“Tom Zhu has been somewhat under the radar for a long time,” says Tao Qingjiu, a professor at the University of Delaware who focuses on the Chinese auto industry. “But if you look at him as a manager or as an executive for the past 10 years or so, he really has been a critical piece in Tesla’s success. You need a visionary leader, like [Steve] Jobs or Musk to point in the right direction. But you do need someone like Zhu who’s going to really push things through.”

In his new job managing Tesla’s American plants, Zhu will be attempting to replicate the scale and speed of the Shanghai factory. Tesla, industry analysts say, needs to increase its manufacturing capacity in order to keep up with demand — sales of EVs doubled in 2021 from the year before — and stay ahead of the competition from both legacy car markers expanding into the EV market and Chinese automakers like BYD and Nio.
But Zhu will be charging ahead without many of the underlying conditions that made the Shanghai Gigafactory possible. As Zhu himself acknowledges, Tesla was able to ramp up production and operations in China largely because the Chinese government was so supportive of the company.

“When we are talking about ‘Tesla speed,’ actually we should mention Lingang speed [the area of the city where the Gigafactory is built], Shanghai speed and China speed,” he said in a 2021 interview with Xinhua. “Tesla speed actually reflects the speed of China’s reform and opening. It reflects the support of the Shanghai and Lingang governments.”
In Zhu’s new role, however, he may hit significant speed bumps from the U.S. government, including labor laws and supply chain regulations that will challenge his famed execution.

“Just showing up and saying you are sleeping in the factory may not work [in the U.S.],” says Bill Russo, the automotive committee chair at Shanghai’s American Chamber of Commerce and founder of Automobility Ltd, an advisory firm.

Perhaps most significantly, Zhu and Tesla will be trying to buck the trends in a world increasingly fragmented by U.S.- China tensions. While many companies are pursuing “decoupling” efforts, Zhu’s promotion sends a strong signal that the Austin, Texas-headquartered company intends to have feet on both sides of the fence. Musk himself is under fire for his ties to China — especially given his control over Twitter, one of America’s largest social media platforms, and his penchant for towing Beijing’s line on issues like Taiwan.

“What’s interesting about Tesla is that it is an American company in the sense that it was created in the U.S. and its headquarters are in the U.S., but it wouldn’t have become so big and successful had it not entered the Chinese market in such a smart way,” says Ilaria Mazzocco, a senior fellow who studies China’s EV sector at Center for Strategic and International Studies in Washington. “It is an example of a company that really benefited from globalization. Part of their challenge is how to navigate a geopolitical environment where many countries are trying to curtail that globalization.”
Dressed most days in a Tesla fleece over his skinny frame and wearing large, wire-rimmed glasses, Zhu himself is the embodiment of Tesla’s globalization strategy. Yet in his new position, he will also be the one facing the political and economic forces attempting to dismantle it.

PRIVATE EDEN

Zhu is not an engineer. Nor is he a car guy. In fact, before joining Tesla, his main professional experience was managing construction projects.

“If you read this guy’s resume, you would never think he would run the manufacturing operations,” says Russo, at Automobility. “You’d never pick a guy like that to run a factory. But here he is. It shows he has the ability to execute.”

Zhu also has experience working overseas. After growing up in the city of Shenyang, in northeast China’s Liaoning Province — which borders North Korea — he moved to New Zealand to attend Auckland University of Technology. He then moved to North Carolina to study at Duke University’s
Fuqua School of Business, where he graduated in 2012. He reportedly holds a New Zealand passport.

Along with several Fuqua classmates, he set up Kaibo Engineering Group, which helps Chinese companies manage overseas construction and mining operations. Kaibo’s projects, according to company materials, included a highway in Vietnam, a $162 million railway in Nigeria, and a $500 million irrigation project in Sudan.
Zhu has said these projects taught him how to work across a wide range of contexts.
“My previous experience at Kaibo was leading an interdisciplinary cross-cultural team, in a relatively tough environment in North Africa,” he said in an interview at his alma mater, Fuqua School of Business. “During the procedure of finishing those difficult tasks, I gained lots of skills, such as communication, coordination and optimization.” Kaibo did not respond to requests for comment.

In 2014, Tesla hired him to oversee its first large-scale construction project in China: the supercharger network. Zhu worked with local governments and businesses to expand the network in places like mall and hotel parking lots.

Veronica Wu, who ran the Tesla China operation starting in 2013 and hired Zhu, says, “He was a good project manager. He’s super good. We opened up these customer relationships, and every time we opened a door, he just went in and did a great job in terms of consummating those partnerships, and getting the superchargers actually set up.”

From the beginning, both Zhu and Wu, who left Tesla in 2015, were aided by the strong backing of the Chinese government. Beijing had put in place ambitious pilot programs to spur EV industry development, and it identified Tesla as its best chance to encourage early adoption among consumers and build up a strong domestic supply chain. Somewhat remarkably, Beijing even acquiesced to Tesla when the company negotiated its entrance into China: Tesla was allowed to maintain whole ownership of its China subsidiary and manufacturing operation, which had never before been granted to a foreign automotive company. Beijing also implemented a dual-credit system, a policy which forces car companies not meeting fuel consumption standards to buy credits from fuel efficient companies, like EV makers. (A similar system had been adopted in California, and Tesla was a big beneficiary.)

“Why did China make those decisions? They thought this would be good for China,” says Feng An, the founder of Innovation Center for Energy and Transportation (iCET), a clean tech think tank based in California and Beijing, who was also involved in lobbying for the dual credit system. Feng says Beijing did the same thing with smartphones, letting Apple into China to raise the bar and facilitate growth in the domestic sector. “Apple helped Xiaomi [the Chinese smartphone giant] get started,” he says. “China had a lot of EV companies, but profits were very poor. To let Tesla in, they thought it would create an innovation environment.”

The strategy worked again. Chinese automakers like BYD (which is backed by Warren Buffet) and Geely Automobile are now competing fiercely while Nio, another fast-growing EV maker, is attempting to become a competitor to Tesla in the luxury segment. Musk has even acknowledged the threat these companies pose to Tesla: “The Chinese market is the most competitive. They work the hardest and they work the smartest,” he said in an earnings call in January. “And so, if I would have guessed, there [is] probably some company out of China as the most likely to be second to Tesla.”

Or overtake Tesla, especially since Tesla might not be able to rely on as much Chinese government support going forward. Zhu once described China as “paradise for the EV industry,” and figures like Li Qiang, who was then Shanghai’s Party Secretary and is in line to become premier this year, were god-like in their ability to help Tesla get the Shanghai Gigafactory off the ground.

Li and the Shanghai government helped arrange government approval, a plot of land and generous tax credits: the company’s Shanghai Gigafactory subsidiary pays a 15 percent corporate tax rate, down from the usual 25 percent, according to filings.

But with domestic champions like Geely and BYD in the picture now, China is no longer Tesla’s private Eden. Zhu’s challenge going forward will be managing the cut-throat competition in China at the same time that he adapts Tesla’s China playbook for the United States.
“Tesla has to keep up their own game,” says Wu, the former Tesla China director. “Nobody wins forever.”

CULTURE CLASH

In mid-February, workers in the Tesla factory in Buffalo, New York — which is responsible for producing solar panels and driver assistance software — announced that they were embarking on a union organizing campaign in an attempt to secure better pay and benefits. This would be a first for the company, which, unlike the Detroit auto giants, has never been unionized.

“We want Tesla to be the company we know it can be,” the workers wrote in their statement.

A day later, however, the union organizers say that Tesla fired dozens of workers in retaliation. The workers have filed a complaint with the National Labor Relations Board (NLRB), but Tesla maintains that the terminations were part of routine performance reviews.

Tesla and Musk have a history of being hostile to unionizing efforts, and they have drawn scrutiny from the U.S. government for it. In 2021, the NLRB ruled that Tesla could not prohibit its employees from speaking to the media about labor issues and that Musk had to delete an anti-union tweet.

“We continue to have challenges with them [Tesla] being bad bosses,” says Jean Cohen, executive officer of the South Bay AFL-CIO Labor Council, a group which has worked on unionization efforts at Tesla’s Fremont, California factory. “For example, threatening employees’ stock options if they join a union. We have [also] seen retaliatory firing for people organizing.”

In the wake of the Buffalo incident, Tesla will be facing renewed questions about its approach to labor groups from regulators and lawmakers — and it will likely be Zhu, the man who boasts about sleeping in his office, who will be answering.

“He despised people taking time off,” remembers a former Tesla employee who worked with Zhu. “It was like, your boss never takes time off, so how dare you take time off?” The employee remembers this aggravating some workers, but he says it jibes with Musk and the company’s philosophy. “It is a company- wide culture,” he says. “[Zhu] sits with Tesla very well.”

One of Zhu’s main priorities going forward will likely be the Texas Gigafactory, which is producing cars as well as the long awaited Cybertruck in a 10-million-square-foot factory. Last month, the company announced plans to spend $770 million to expand the factory further. But Li Qiang, a labor rights activist who runs China Labor Watch, says Tesla — and Zhu — might have to adjust their expectations.

“Tesla might be doing this [bringing Zhu to the U.S.] to increase the productivity and efficiency in the U.S. Tesla factories,” says Li. “But I don’t think it is very possible for him to replicate the military style management in the United States.”

The clash between Chinese efficiency and U.S. labor rights was best illustrated by the Academy Award- winning 2019 documentary film American Factory, which follows a Chinese glass company’s efforts to set up a factory in an abandoned General Motors plant in Ohio. Throughout the film, Chinese executives see the American workers as lazy and unproductive, while the U.S. workers are aghast at the safety oversights and demands of their new Chinese bosses.

“One huge hotspot [in American Factory] was forming a union,” says Chen Xiaoping, a professor at University of Washington who researches cross-cultural management. “The union was not successful [in the documentary], but the trend has changed — there is a trend of companies unionizing that you would never expect.” For Zhu, Chen says, this would be “a potential thorny issue to deal with.”

The Inflation Reduction Act (IRA) poses another challenge — and opportunity — for the company. The legislation, which was signed into law this summer, will provide tax credits for consumers of EVs that are assembled in North America, source battery components from the U.S., and use critical minerals extracted or processed in the U.S. or a country that has a free trade agreement with the United States.

In order to take advantage of the tax credits, Tesla will have to quickly ramp up of its battery production capacity outside of China. Tesla is considering building a refinery for lithium, a battery component, in Corpus Christi, Texas, and it has inked a deal with Vale, a Brazilian mining firm, to supply nickel for its U.S. plants.

The IRA, along with other Washington policies encouraging companies to re-shore supply chains and reduce dependence on China, will mean that Tesla will need to create some distinction between the supply chains in its two largest markets and manufacturing hubs. Late last year, for example, the U.S. Senate began an inquiry into car companies’ exposure to Xinjiang due to labor rights violations and a new U.S. law that restricts imports from the Chinese region. The Senate sent letters to eight companies, including Tesla, asking them to explain any supply chain nexus and their efforts to mitigate any involvement in labor rights violations.

“How does Tesla navigate a future in which the U.S. and China seem hell bent on creating parallel and competing supply chains for EVs?” asks Michael Dunne, the founder of ZoZoGo, an automotive consultancy. “How does Tesla square that up? Where are their priorities? In China or the U.S.? What if there is a rupture between the U.S. and China, what would it mean for Tesla?”

Zhu will likely be working around the clock to answer these questions. But despite the fragmentation and complications, two things are clear: Tesla still needs China and it still needs Tom Zhu to succeed.

“When China goes, Tesla goes,” says Lei Xing, a Chinese EV expert. “And when Tom Zhu goes, Tesla goes.”

Grady McGregor contributed reporting to this story.

SOURCE: https://www.thewirechina.com/2023/02/26/tesla-tom-zhu/