By Matt Underwood Tesla requires suppliers to avoid China-made parts for US cars, as reported by the Wall Street Journal, and it sparks a flurry of thoughts, doesn’t it? The immediate reaction is often one of irony, considering Tesla’s significant manufacturing presence in Shanghai with its Gigafactory. However, it quickly becomes clear this isn’t just a Tesla-specific move; General Motors is reportedly doing the same.
The implications of this shift are considerable. It seems that the policy will apply specifically to US-bound vehicles. This could potentially lead to higher prices in the US, as Tesla navigates the complex landscape of establishing new supply chains. Meanwhile, in other markets, they can potentially leverage the cost advantages of their existing, more established manufacturing processes. This strategy makes perfect sense, especially as it aligns with impending legal requirements across the industry.
We’re talking about a phased rollout, with timelines that begin to take effect in the coming years. By 2026, Chinese software will need to be phased out of existing models, 2027 will see this extended to new models and by 2029 or 2030, even the computer hardware won’t be allowed to be sourced from China. This is a significant undertaking, requiring a complete overhaul of the supply chain.
There’s also the feeling that this isn’t entirely new. The sentiment suggests that a lot of global customers are already avoiding Tesla-made cars, and that this shift, whether prompted by legal requirements or business strategy, could be a pivotal moment. The company’s capabilities are definitely there to create its own ecosystem. It’s a matter of coordination, investment, and execution, and as it stands, it’s not really a surprise.
The current trade landscape is critical. It’s perceived that Tesla is preemptively preparing for potential tariffs or trade restrictions, which makes sense from a business standpoint. And then there’s the elephant in the room: batteries. China currently manufactures the majority of batteries used in electric vehicles, which represent a substantial portion of the car’s overall cost. So, where will these batteries come from? It’s a key question that requires a lot of answers.
The issue goes beyond just batteries. Many components currently come from China. The glass, suspension parts, and even the compute modules, all touch China at some point. The availability of alternative suppliers, such as those in Mexico for brakes and rotors, provides some relief. But this also raises a question of quality. Some feel that the cars produced in Tesla’s China factory are of a notably higher quality compared to their US-based counterparts.
There are many variables to consider, including the broader economic and geopolitical context. Deflation in China, driven by green energy and robotics, further complicates things. The specter of a potential trade war and the impact of COVID-related supply chain disruptions have clearly accelerated this shift towards more localized and vertically integrated supply chains.
The role of the US government is also discussed. Some anticipate government subsidies for companies making this transition, possibly coupled with increased tariffs on Chinese goods. This suggests that the US government is indirectly pushing companies to do the hard work of decoupling from China, perhaps even eyeing the confiscation of rare earth minerals for weapons.
Of course, the reliability and transparency of these indices also come into question. The American Made Car index is highlighted, and it is a good indicator, but the absence of publicly available data on its methodology raises questions about the thoroughness of the analysis.
Ultimately, the move by Tesla and potentially other automakers reflects the evolving economic relationship between the US and China. It signifies a significant shift in global manufacturing and supply chains, driven by legal mandates, trade concerns, and strategic business decisions. It’s a complex and dynamic situation, but with implications that will be felt throughout the automotive industry.