When Tesla Stumbles, Everyone Watches

Economist Mohamed El-Erian is paying close attention to Tesla Inc. (TSLA), and not because he's shopping for a new car. In a post on X this week, he pointed to Tesla's recent struggles in China as a warning sign for every American company operating in the world's second-largest economy.

The numbers tell an uncomfortable story. Tesla's October sales in China fell 9.9% year-over-year, a sharp reversal after a strong September. Deliveries hit a three-year low, and the company is on track for its first full-year decline in what has been its second-largest market.

But according to El-Erian, this isn't just about one electric vehicle maker having a rough quarter. It's about something bigger playing out across the entire region.

Two Forces Colliding

El-Erian frames the situation around shifting supply and demand dynamics that are reshaping the competitive landscape in China.

On the supply side, he notes the "forceful emergence of China's EV industry, including its state-backed players." Companies like BYD Company (BYDDY), XPeng Inc. (XPEV), and Li Auto Inc. (LI) have been expanding aggressively with strong government support and cost advantages that American competitors struggle to match. These domestic manufacturers have been grabbing market share both at home and increasingly abroad.

On the demand side, things aren't as robust as they once were for American companies. The enthusiasm that once greeted U.S. brands in China seems to be cooling, replaced by rising competition and intensifying pressure from local alternatives.

The result? U.S. companies face what El-Erian calls "a stark strategic choice." They can make a bet on China by leaning into the "current tactical geopolitical peace," or they can use this moment to "aggressively reduce their sensitivity to Chinese markets and suppliers."

In other words: all in or all out. The middle ground is getting uncomfortable.

Not Everyone Is Struggling

Here's where the story gets more interesting. While Tesla is hitting headwinds, not every American automaker is suffering in China.

General Motors Co. (GM) reported strong momentum in the third quarter, with a 10.1% year-over-year surge in sales. The gains were driven by strong performance from its Buick brand and new energy vehicles, suggesting that success in China isn't impossible for U.S. companies. It just requires the right approach and product mix.

The divergence between Tesla's struggles and GM's success underscores El-Erian's broader point: this isn't simply about China becoming hostile to American business. It's about intensifying competition, evolving consumer preferences, and the need for companies to make hard choices about their strategic positioning.

The Geopolitical Backdrop

All of this is playing out against a backdrop of cautious optimism on trade relations. Chinese President Xi Jinping recently expressed positive sentiment about U.S.-China trade during a call with President Donald Trump, offering a glimmer of hope that the relationship might stabilize.

But as El-Erian suggests, that "tactical geopolitical peace" might be temporary. Companies betting their futures on it could be taking a significant risk.

For now, investors seem willing to look past Tesla's China troubles. The stock jumped 6.82% on Monday, closing at $417.78, and ticked up another 0.28% in after-hours trading. The company continues to score high on momentum and quality metrics.

But the question El-Erian raises isn't going away: when the geopolitical weather changes, will American companies wish they'd used the calm to chart a different course?