Tesla Inc. (NASDAQ:TSLA) has asked its suppliers to exclude China-made parts in U.S. car production amid increasing geopolitical tensions between the U.S. and China.
Tesla, Suppliers Replace Chinese Parts
According to a Wall Street Journal report, the Elon Musk-led EV giant decided to stop using China-based suppliers for its U.S.-made cars earlier this year, according to sources familiar with the matter.
The company and its suppliers have already begun replacing some China-made components with parts from other countries.
Supply Disruptions, Tariffs
The shift is part of Tesla’s broader strategy to reduce reliance on Chinese components, a plan accelerated by tariffs imposed by President Trump on Chinese imports. The company aims to switch all remaining parts to non-China sources within the next year or two.
U.S.-China Trade Tensions
China’s role as a major producer and exporter of auto parts, including chips and batteries, has been impacted by the ongoing U.S.-China trade tensions.
Recent disruptions in the supply of automotive chips, due to a dispute between China and the Netherlands, have further prompted Tesla to diversify its supply chain, according to the report.
The company is working to secure additional non-China-based suppliers, though challenges remain, particularly with lithium-iron phosphate batteries.
The decision by Tesla to move away from China-made components for its U.S. vehicles comes amid a backdrop of declining sales in China. In October, Tesla’s sales in China fell sharply, with a 36% year-over-year drop.
Moreover, China’s tightening grip on rare earth exports, crucial for many tech industries, further complicates the situation. As China controls a significant portion of rare-earth mining and processing, this move has significant implications for global supply chains, including those of tech giants like Apple Inc. (NASDAQ:AAPL).
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