Even traders in financial markets emulate strategies from Sun Tzu’s “Art of War.”

Elon Musk’s bold bet to make electric vehicles in China out of Tesla’s Gigagactory 3 may be a classic military strategy according to venture capitalist Paul Holland. And it draws a leaf from the 2,500-year-old tome, “Art of War,” written by Sun Tzu.

China is the world’s largest market for electric vehicles.

Chinese companies are also the potentially largest competition for Elon Musk’s Tesla in its quest for global dominance in electric vehicles.

Sun Tzu: The art of Tesla’s Chinese war

“Go right to the home territory of your competitor and make sure you dominate there,” said Holland, the general partner of Foundation Capital. “He’s not going to Detroit. He’s going to Shanghai.” He was speaking on CNBC’s Squawk Alley.

Tesla’s Gigafactory 3 located near Shanghai will help Tesla double its global production. Note that China aims to have only electric vehicles running on its roads by 2030. Tesla would have been effectively locked out of this market because of the huge cost difference on account of ocean transportation and China’s import tariffs on imported electric vehicles.

[Sun Tzu: “The following are the principles to be observed by an invading force: The further you penetrate into a country, the greater will be the solidarity of your troops, and thus the defenders will not prevail against you.”]

Tesla’s Sweet deal in China

With regulations in China now allowing for a foreign company to set up a fully-owned subsidiary on Chinese soil, Tesla can do exactly that – without fear of losing technological secrets to a JV partner.

Moreover, China made available a huge tract of land for the Gigafactory on its East Coast, a rarity these days. The Shanghai municipal government also said it would “fully support the construction of the Tesla factory.”

Could there be some Capex benefits here for Tesla?

By locally manufacturing, Tesla also made itself eligible for government subsidies offered for domestic manufacturing. In December, Tesla’s Model 3 qualified for a government subsidy of 25,000 yuan ($3,600) per car.

The Model 3 was also exempted from a 10% purchase tax, making it cheaper for buyers.

With anticipated local sourcing of components expected to rise from 30% to 100%, Tesla can further lower its prices.

[Sun Tzu in the Art of War: “Be before the enemy in occupying the raised and sunny spots, and carefully guard your line of supplies. Then you will be able to fight with advantage.”]

Tesla moved fast, very fast, in China

Tesla completed its Gigafactory 3 in just 10 months.

[Sun Tzu in the Art of War: “The quality of decision is like the well-timed swoop of a falcon which enables it to strike and destroy its victim.”]

Sun Tzu and Tesla: Competition in disarray?

Tesla has already begun deliveries of Model 3. Meanwhile, there is no other effective competition for Tesla in China. As of last March, there were 486 manufacturers of electric vehicles in China – only 20-30 are expected to remain standing ultimately.

China’s own Tesla, NIO, is still beset with various problems.

On the other hand, Tesla, fresh out of the gates, is likely to chalk up 100,000 to 150,000 deliveries of Model 3 during 2020.

“Tesla’s positioning is unique, not much direct local competition so far. If there is no serious quality issue … Tesla has no problem to hit the target in 2020 in China,” Yu Zhang, managing director at Automotive Foresight, told CNBC.

[Sun Tzu in the Art of War: “Thus the highest form of generalship is to balk the enemy’s plans; the next best is to prevent the junction of the enemy’s forces….]

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