Tesla, who is currently trying to reduce the cost of Model 3 and improve its margin, has been officially denied tariff exemption for Model 3’s computer and screen over the new Chinese tariffs by the Trump administration.

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 that 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.”

Earlier this year, Tesla asked the United States Trade Representative’s Office for an exemption on the tariff that would affect the price of its computer, but now Reuters reports that they have been denied:

“The U.S. Trade Representative’s Office denied both requests in May 29 letters, saying they both concern “a product strategically important or related to ‘Made in China 2025’ or other Chinese industrial programs.”

In its request, Tesla argued that it isn’t realistic to switch suppliers and that a new 25 percent tariff is significant enough that Tesla believes it would impact profitability and cause “economic harm” to the company.

Electrek’s Take

We are talking about two parts here so the impact shouldn’t be too crazy, but they look expensive and every bit counts as Elon made clear when announcing Tesla’s latest cost-cutting effort.

I doubt anyone was betting heavily on getting the exemption and therefore, Tesla has hopefully been looking at other alternatives throughout the year.

The good news is that the Model 3 vehicles built at Tesla’s Gigafactory 3 in Shanghai will not suffer from the same tariffs.

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