Home Credit report Musk’s Twitter deal and Tesla’s reliance on China

Musk’s Twitter deal and Tesla’s reliance on China

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By dominating the supply of multiple components critical to Tesla’s fortunes, the Chinese government wields so much sway over CEO Elon Musk’s wealth that his proposed acquisition of Twitter should worry national security officials. a dozen current and former officials involved in foreign investment review. told the Washington Post.

While Musk has said he would like Twitter to allow an even wider range of speech than it does today, China’s leaders’ ability to affect Musk’s fortune could encourage them to ask him to identify the opposition and US Twitter users, to block content that the government considers illegal, or at least allow its own propaganda to flow unchecked, these people said.

There’s no way to know how Musk and a private Twitter would respond, and Musk didn’t respond to email questions. But because the majority of his wealth is tied to or backed by Tesla stock, some experts said the interagency panel that reviews foreign investment should step up its nascent probe into the deal.

“Given the volume of information, the number of Twitter users and therefore the amount of sensitive personal data that Twitter has, any foreign investment is likely to come under scrutiny,” said Richard Sofield, partner at Vinson. & Elkins who led such Justice Department reviews under the two previous presidents.

Potential access to only user data is “clearly a significant national security concern,” said an official in former President Barack Obama’s administration. US officials have previously charged Chinese nationals with hacking into insurance company Anthem and credit reporting agency Equifax for personal information they fear could be matched with files on agents U.S. intelligence, which were stolen from the Office of Personnel Management in 2015.

The ability to extract sensitive personal information from hospitals and insurers that could be used in counterintelligence work was reason enough to block or modify acquisitions in those industries, the former official said, and “to obviously Twitter would be one of those things.” Like others, he asked to speak anonymously because of his previous involvement in the secretive process run by the Committee on Foreign Investment in the United States, known as CFIUS.

Led by the Treasury Department and involving representatives from justice, defense, state and other departments, the CFIUS was given more power in 2018 to recommend blocking acquisitions when a company was not taking direct control of an American company. The Washington Post reported on Wednesday that CFIUS had begun asking questions about foreign investors participating in Musk’s bid.

Musk has not been accused of wrongdoing and, as CEO of SpaceX, a launch partner for NASA missions, he has been thoroughly vetted by the US government.

China’s potential influence on Tesla, however, is hard to dispute.

The company’s Shanghai plant accounted for nearly half of Tesla’s manufacturing in 2021, and China is one of the biggest markets for vehicles. Last year, Musk said he would become the greatest.

Musk also has to deal with all-powerful authorities there, as he recently did over coronavirus pandemic restrictions that shut down the Shanghai factory.

China is even more crucial on the supply side.

In an impact report released in May, Tesla revealed the direct sources of its batteries, most of which were in China.

All of those listed provided cobalt, lithium or nickel, some of the most sought after commodities in the industry. Having focused on the supply of electric batteries as a strategic objective ten years ago, China produces the world’s majority.

Tesla and its rivals also source minerals from Congo and elsewhere, but China has maneuvered to take stakes in the companies involved and win longstanding concessions from governments.

To increase Tesla’s bargaining power and secure future supplies, Musk has entered into long-term agreements with mines in Canada, Australia and other countries.

But China not only has a near-lockdown on key minerals, it has another on processing those minerals, analysts said.

Musk recently floated the idea of ​​Tesla getting into mining itself, which would take 7 to 10 years in Western countries, according to Wood Mackenzie research director Gavin Montgomery.

“In the final analysis, it’s not practical to get out of China entirely,” Montgomery said. “They could cut Tesla, or they could cut everyone. And if we find ourselves in a crisis, China has the option of keeping this cobalt for its own domestic industry.

Musk raised hopes for greater independence from China last year when he said he would move Tesla’s cars to iron phosphate batteries that don’t have no cobalt or nickel needed. In April, Tesla said nearly half of new vehicles in its previous quarter included these types of batteries.

Unfortunately for the company, the vast majority of so-called LFP batteries also come from China.

“You would think that switching to LFP would reduce some of the dependencies, but all of the LFPs he uses are either made in China or sourced from there,” Montgomery said.

Some US intelligence analysts and White House officials are among those worried about the potential for arm-twisting by China if Musk gets his hands on Twitter.

This alone would not be enough to formally block the $44 billion transaction: the CFIUS is generally barred from intervening when the acquirer is American, as Musk is.

“Twitter wouldn’t be ‘foreign investment in the United States,’ and it’s overkill to use that authority to review it,” said Matthew Turpin, senior analyst for the Commerce Department and White House China until in 2019, when he became a councillor. to government contractor Palantir Technologies.

Nevertheless, after having authorized and then regretted certain transactions in semiconductors and elsewhere, the CFIUS has taken a broader view of its authority, looking not only at the acquirer but also at its backers and customers. This has been especially true for Chinese minority investments in tech companies.

In other A pivotal case, Obama blocked a China-backed acquisition of the U.S. operations of semiconductor company Aixtron, in part because a former Chinese customer of Aixtron had ties to the acquirer and government backing.

“Where there might be Chinese interests, for example if there are Chinese operations or customers of the existing US business, CFIUS conducts a very thorough risk-based analysis, regardless of how benign the transaction,” wrote law firm Covington & Burling. at the time.

Then-President Donald Trump then blocked chipmaker Broadcom’s attempted takeover of Qualcomm in 2018, shortly after the former said he was moving to the United States from Singapore. In this case, CFIUS was concerned about both Broadcom’s Chinese customers and Qualcomm’s sensitivity as a supplier to the Department of Defense and other critical industries.

Former officials said there was at least reason to ask more questions and that they assumed Musk’s lawyers were preparing to brief officials and avoid concerns.

“It’s likely CFIUS will ask for more information, and they may want a submission to flesh out the national security issues,” the Obama veteran said. “In theory, could they ruin everything? Absolutely.”

A member of Musk’s legal team did not respond to emailed questions.

A former Commerce Senate staffer said questions are likely to come, though going further would open up new territory.

“It’s clearly a sensitive national security asset, but you have to find the jurisdictional hook,” he said, requesting anonymity due to the sensitivity of the issue.

One way to get more information, current and former officials said, would be to lobby Musk’s team about influence and access to Twitter information that will be held by his minority investors, including a sovereign wealth fund from Qatar and Saudi Prince Alwaleed Bin Talal Bin Alsaud. .

Governments in countries like Russia, China, and Saudi Arabia have invested in using Twitter to advance their national interests, and regulators fear it could be facilitated by access to insider information or influence over Twitter executives.

Countries like Saudi Arabia are constantly on the lookout for inside information about American tech companies, including social media companies like Twitter, according to national security experts. In 2019, a former Twitter employee was charged with spying for Saudi Arabia.

Major cryptocurrency exchange Binance could also play a role in any investigation, some officials said: While leaving its original home in China, the company partnered with a Chinese government-owned company as part of a blockchain initiative. A spokesperson for Binance said that effort was lapsed, that it had no presence in China, and that it had never taken an investment from a Chinese government-controlled entity.

Ivan Schlager, a trade lawyer for Kirkland & Ellis, said the US government was already paying close attention to supply chain issues related to the growing demand for batteries for electric vehicles, especially after it failed prevent a Chinese company from buying a bankrupt US battery manufacturer.

“CFIUS is increasingly concerned about access to raw materials and protecting what’s left of battery manufacturing,” Schlager said.

American companies should also be concerned, especially if they have Musk’s kind of money, said Robbie Diamond, founder of the nonprofit group SAFE, formerly Securing America’s Future Energy.

“The entire electric vehicle industry is currently handcuffed by China and completely dependent,” said Diamond, who has backed Tesla and Musk.

“I can’t talk to Twitter. But I think in some ways his money would be better spent building that supply chain to support the auto company that gives him that wealth.

Faiz Siddiqui and Gerrit De Vynck contributed to this report.