LDN - Business

Tesla cars banned from China's military complexes on security concerns -sources

[March 20, 2021] (Reuters) - The Chinese military has banned Tesla cars from entering its complexes, citing security concerns over cameras installed on the vehicles, two people who have seen notices of the directive told Reuters.

The move is the latest sign of China's growing scrutiny of the U.S. electric carmaker amid tensions with Washington. Analysts said it resembled Washington's measures against Chinese telecoms firm Huawei citing national security.

Chinese military restrictions on Tesla surfaced as senior Chinese and U.S. officials held a contentious meeting in Alaska, the first such interaction since U.S. President Joe Biden took office.

"I presume the timing of the announcement surely linked to the fireworks planned for Anchorage," said Ian Bremmer, president at Eurasia Group consulting firm.

Tesla shares ended up 0.3% after falling as much as 4.4% during trade.

The U.S. electric car maker won strong backing from Shanghai when it built its first overseas factory there in 2019. Tesla's sleek Model 3 sedans were the best-selling electric vehicle in the country before being overtaken by a much cheaper micro EV.

The directive advises owners to park Teslas outside military property, and residents were notified this week, the two sources said, declining to be named due to the sensitivity of the issue.

Bloomberg News earlier reported the move.

Pavel Molchanov, an analyst at Raymond James & Associates, said the latest restrictions on Tesla were a close parallel to the U.S. government's hostility toward Huawei on concerns Beijing could have access to U.S. telecoms infrastructure.

"Even if such concern is exaggerated, it can create dislocation for the companies directly affected," he said.

Separately, the Wall Street Journal reported that China's government was restricting use of Tesla cars by personnel at military, state-owned enterprises in sensitive industries and key agencies.

It was not immediately clear whether the measure applied to all such facilities. The move came after a government security review of Tesla's vehicles, the report said, citing people familiar with the effort.

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A man wearing a face mask following the coronavirus disease (COVID-19) outbreak walks by Tesla Model 3 sedans and Tesla Model X sport utility vehicle at a new Tesla showroom in Shanghai, China May 8, 2020. REUTERS/Yilei Sun

Tesla sold 147,445 cars in China last year, or 30% of its total deliveries, though competition is growing from domestic rivals such as Nio Inc and Geely.

China's State Council Information Office and Tesla did not immediately respond to requests for comment. China's defence ministry could not immediately be reached for comment.

CARS AND CAMERAS

Automakers have been equipping more vehicles with cameras and sensors that capture images of a car's surroundings. Control of how those images are used and where they are sent and stored is a fast-emerging challenge for the industry and regulators around the world.

Tesla cars have several external cameras to assist drivers with parking, changing lanes and other features. Chief Executive Elon Musk has often spoken about the value of the data Tesla vehicles capture that can be used to develop autonomous driving.

Tesla's Model 3 and Model Y also have cameras in the rear view mirror for driver safety that are disabled by default.

"China has an array of tools - some direct, some indirect - for putting the heavy on foreign companies like Tesla. The pressure can come from any direction, for any reason at any time," said Michael Dunne, chief executive of consultancy ZoZo Go.

A Chinese state regulator said in February that government officials had met representatives from Tesla over consumer reports of battery fires, unexpected acceleration and failures in over-the-air software updates.

Musk is scheduled to speak online on Saturday at a state-hosted annual global economic gathering in Beijing called the China Development Forum. The event includes Chinese officials.

(Reporting by Beijing Newsroom, Hyunjoo Jin in San Francisco and Eva Mathews and Subrat Patnaik in Bengaluru; Editing by Maju Samuel, anil D'Silva, Emelia Sithole-Matarise, David Clarke and David Gregorio)

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