OPINION:
As President Biden’s increasingly virulent stagflation chokes off auto buyers and the American economy, Elon Musk’s predatory pricing strategy for Tesla is likely to snuff out General Motors and Ford.
Mr. Musk’s gambit will likely also cede long-term control of the global auto market not to Tesla but rather to China.
In the financial press, Mr. Musk’s price slashing is portrayed simply as the act of a desperate man taking desperate measures as inflation, higher interest rates, and recession savage the U.S. auto market. But Mr. Musk is one of the smartest humans on the planet, and it is critical to understand several key economic concepts underlying his price-cutting strategy.
The first is “economies of scale.” Industries like auto manufacturing that require massive capital investments can best lower unit costs of production by expanding factory scale. Whichever company achieves the greatest economies of scale will thereby have the firepower to drive out other competitors through lower, and yes, predatory prices.
With such “predatory pricing,” the largest companies can drive out the smaller ones by driving down prices to their cost of production, thereby earning zero profits but not operating at a loss. In contrast, smaller companies can’t match that predatory price without losing money and are thereby driven out of the market.
This is why historically, we never saw a proliferation of hundreds of auto manufacturers but rather simply the Big Three of General Motors, Ford and Chrysler and foreign giants like Toyota, Hyundai and BMW. And extinction is precisely the fate that awaits the U.S. automakers Ford and GM if Tesla succeeds in dominating the electric vehicle market.
You might think that lower Tesla prices at a time when inflation is raging would be good for America. Enter stage Marxist left, China.
Tesla is already producing over half of its global output in China. Despite Mr. Musk‘s promises not to do so, Tesla is also readying to flood America with Made in China slave labor imports — its Gigafactory Shanghai is already the world’s biggest electric vehicle manufacturer.
From my days in the White House, I learned firsthand that fewer auto manufacturing jobs in America and a larger trade deficit with China mean slower U.S. economic growth and downward pressure on wages.
Here’s the even bigger danger: Tesla’s massive and growing Made in China footprint virtually ensures that Chinese producers will steal Tesla’s intellectual property and technologies and emerge collectively as global market leaders, eventually pushing Tesla aside.
Such IP theft and tech transfer will occur both through the forced technology transfer policies implemented by the Chinese Communist Party and through China’s rampant industrial espionage. Here, I can think of only one American multinational that has never been victimized by such expropriation: Oracle. In contrast, China stripped General Electric clean and turned GE from one of America’s greatest national champions into a pale shadow of its former self.
There is also this looming geopolitical threat: In the event of a military conflict, trade war, or clash over human rights with China, Chinese dictator Xi Jinping will order the takeover of Tesla facilities in much the same way Hitler used the German-based factories of Henry Ford to transport his war machines.
Lest anyone doubt this possibility, just what do you think is going to happen the day after China crosses the Taiwan Strait and invades one of the world’s most vibrant democracies?
Finally, there are significant risks to election integrity associated with Mr. Musk’s unholy China alliance. Both to kowtow to his Chinese masters and to protect his Tesla investments, Mr. Musk must staunchly oppose the one presidential candidate in 2024 that the Chinese least want to inhabit the Oval Office, Donald Trump. Under a Trump presidency, Mr. Musk’s Made in China Teslas would face massive tariffs, and he would be under intense Trumpian pressure to bring that production home.
Of course, the mega-billionaire Musk has the same kind of election-rigging money that Mark Zuckerberg of Facebook used to help the Democrats set up illegal drop box and ballot harvesting operations in key battleground states in the 2020 presidential race.
At the same time, like Mr. Zuckerberg, Mr. Musk also owns a social media platform — Twitter — that along with Facebook has already been proved to have illegally intervened to stop Mr. Trump in 2020. Remember: Both Mr. Zuckerberg and Twitter collaborated with the FBI to suppress dissemination of the Hunter Biden laptop scandal, which alone would have swung the race for Mr. Trump.
Add all this up, and there is an ultimately anti-American method to Mr. Musk’s seemingly price-slashing madness. Are you listening, Congress?
• Peter Navarro served as former President Donald Trump’s manufacturing czar and chief China hawk. This piece originally appeared in his Taking Back Trump’s America Substack at http://peternavarro.substack.com.
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