Tesla has placed a request with the Trump administration to get an exemption from the new 25 percent tariffs on some Chinese-made products for a critical part on the Model 3.
Last year, President Trump announced a series of new tariffs on Chinese goods as part of an intensifying trade war with China. One of the goals was to convince American companies to keep more of their production in the US, but it’s not as simple.
Even though Tesla currently produces all its vehicles in the US, it still relies on Chinese suppliers for some specific parts, which could be difficult to make in the US.
That’s apparently the case for a computer inside the Model 3 that Tesla describes as “the brain of the vehicle.”
Reuters uncovered a request for tariff relief that Tesla filed with the United States Trade Representative’s Office.
In the request, Tesla argues that it couldn’t realistically switch suppliers:
“choosing any other supplier would have delayed the (Model 3) program by 18 months with clean room setup, line validation, and staff training.”
Furthermore, the automaker says that it could lead to safety issues.
They wrote in the request for tariff relief:
“[Switching supplier could] substantially increases the risk of poor part quality that could lead overall vehicle quality issues that would impact the safety of our vehicles and the consumer acceptance of the final product,”
The new 25 percent tariff is significant enough that Tesla believes it would impact profitability and cause “economic harm” to the company.
It’s unclear what computer Tesla is referring to and the company didn’t confirm the name of the supplier.
Tesla has yet to receive a response from the government about the exemption.
Other American automakers are also asking similar exemptions on Chinese parts.
Tesla is now producing Model 3 at an average of almost 5,000 units per week and the margin on the vehicle is extremely important to their goal of staying profitable.
I can see how a new tariff like that could hurt a company.
Let’s say the part cost $500. For Tesla, that’s a $8 million hit on the Model 3 program’s profitability per quarter.
It’s crazy that this trade war is really affecting Tesla, and other companies, from both sides.
Tesla sees the cost of making its vehicles increasing due to tariffs on Chinese parts and then it has to also increase its prices of those same vehicles in China because the country is retaliating with its own tariffs on American goods.
You can’t escape it.