Tesla Wants Suppliers to Shift Outside China, Taiwan: Report

Electric vehicle-maker Tesla is ‘aggressively’ pushing its suppliers to start making key components outside of China and Taiwan, even as the company’s owner Elon Musk steps up efforts to tap deeper into the Chinese auto market.

Tesla has asked its suppliers of components like printed circuit boards, displays and electronics control unit systems to make the shift as early as next year, according to a report by Nikkei Asia that cited supply chain executives with knowledge of the matter.

In its communication to the suppliers, Tesla cited increasing geopolitical risks in China ahead of the presidential election in the United States in November.

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The election will pit incumbent President Joe Biden likely against Donald Trump — both of whom have called for aggressive measures to cut China’s dominance in technologies ranging from chips to electric vehicles.

Last week, the Biden government announced plans to quadruple levies on Chinese EVs to 100%. His administration is planning to soon announce rules targeting Chinese connected vehicles, citing ‘risks to national security’ from the chips and sensors that power them.

By working with suppliers based out of China, especially for cars meant to be sold outside the mainland, Tesla is looking to build an alternative supply chain and mitigate any risk of disruptions stemming from tensions between the US and China, Nikkei said.

Suppliers contacted by Nikkei said that while other American carmakers such as Ford and General Motors had also made similar requests, Tesla was “the most aggressive.”

That’s despite recent efforts by Tesla chief executive Elon Musk to curry favour in Beijing, especially in a push to roll-out the EV giant’s Full Self-Driving (FSD) software in the world’s biggest car market.

In a whirlwind trip to Beijing last month, Musk met with Chinese premier Li Qiang — a meeting widely seen as a move to lobby for FSD and permissions to transfer related data overseas.

This month, Reuters reported that Tesla was also looking to set up a data centre in China to alleviate Beijing’s data security concerns, while also gaining the ability to develop more fully autonomous vehicles.

Taiwan caught in the middle

According to the Nikkei report, Tesla didn’t just want to build supply chains out of China — but out of Taiwan too.

Suppliers told Nikkei that it is “really hard and costly” to move production outside both China and Taiwan, as “that is where the mature supply chain is.”

But Tesla’s demand comes amid escalating tensions between China and Taiwan — the democratically-governed island that Beijing views as its own territory.

On Thursday China conducted “punishment” drills around Taiwan, after the island’s newly inaugurated President Lai Ching-te called on Beijing to accept Taiwan’s existence.

The tensions have meant that “to many clients, including Tesla, the so-called China+1 strategy includes avoiding Taiwan as well,” one executive told Nikkei.

The report clarified, however, that Tesla made its requests to suppliers prior to the recent escalation of China-Taiwan tensions, and even the newly announced US EV tariffs.