China's Didi Crackdown: 3 Takeaways For Tesla Investors

DiDi Global Inc - ADR DIDI shares are down another 6% on Wednesday and have now fallen well below the company’s IPO price of $14 on news that China is cracking down hard on the ride-sharing company and has removed Didi from the WeChat and Alipay apps.

On Tuesday, one Wall Street analyst said China’s treatment of Didi could have significant implications for Tesla Inc TSLA as well.

The Analyst: Morgan Stanley analyst Adam Jonas reiterated his Outperform rating and $900 price target for Tesla.

The Thesis: The Cyberspace Administration of China cited security risks and “sensitive” online data in blocking Didi in China. Jonas said investors are right to be concerned about Tesla’s ability to operate its business in China given its reliance on location data, passenger identification data, traffic patterns and other online data.

“The regulations around autonomous driving in China should get stricter over time and may present some increasing challenges to foreign auto makers in the years ahead,” Jonas said.

Related Link: EXCLUSIVE: EVgo CEO Cathy Zoi Talks Charging Station Growth Drivers, Major Auto Industry Partnerships

He noted three specific takeaways from the Didi situation for Tesla investors:

• If China is being this heavy handed with one of its own domestic companies, it doesn’t bode well for its potential treatment of a company headquartered in the U.S., its primary geopolitical rival. Jonas said it would be equally difficult to imagine the U.S. government allowing a Chinese-owned mobility service in Boston or Pittsburgh without extreme scrutiny.
• Tesla’s regulatory environment in China will become increasingly difficult over time. Chinese regulators have already suggested that automakers will be forced to store AV vehicle camera and sensor data locally, for example.
• Tesla China may be forced to distance itself from Tesla to a certain extent. Jonas said there’s a good chance Tesla China may ultimately be a completely separate legal Chinese entity with the parent company retaining a certain percentage ownership.

Benzinga’s Take: The Chinese state-run media has been extremely critical of Tesla’s safety in recent months, ultimately resulting in a “soft recall” of 285,000 cars in China in June. Tesla CEO Elon Musk appears to be well aware of the importance of China to the Tesla bull case and has made a series of controversial pro-China statements over the past year.