Tesla instructs suppliers to avoid Chinese-made parts for cars produced in the US to diversify supply chain – paultan.org

According to a report from the Wall Street JournalTesla is now requiring its suppliers to exclude Chinese-made components from the production of its cars in the United States. People familiar with the situation told the news outlet that Tesla suppliers have already replaced some Chinese-made components, while all other components will be sourced outside China within a year or two.

Since the global pandemic, Tesla has been trying to diversify its supply chain and reduce its dependence on a single region. The decision to turn away from China-based suppliers was accelerated in light of new tariffs on Chinese imports, which made it difficult for Tesla to control costs and develop a good pricing strategy.

It’s not just rising geopolitical tensions between the US and China that are affecting Tesla, as other disruptions, such as the standoff between the Dutch government and Chinese chipmaker Nexperia (a Tesla supplier), where the former took control and later relinquished it, have made it necessary for the electric vehicle (EV) manufacturer to set up two separate supply chains and decouple from China.

Tesla’s Giga Shanghai produces cars for China, Europe and most of Asia (including Malaysia) with parts sourced almost entirely from local Chinese suppliers. A November 2024 report from Shanghai securities news states that there are more than 400 Tier-1 suppliers in China, of which more than 60 are highly integrated into Tesla’s global supply chain.

Tesla sold U.S. vehicles with Chinese-made lithium iron phosphate (LFP) batteries until last year, but these batteries are no longer eligible for specific EV tax credits and were subject to U.S. tariffs under the Inflation Reduction Act (IRA), prompting the company to stop using them in U.S.-made cars. The company is working to set up an LFP battery factory in Nevada, which is expected to be operational next year, although it may not have the volume to meet the company’s full demand.

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