Tesla needs China to survive, but it doesn't want suppliers to make everything there in case of supply chain snarls: report

Supply chain executives told Nikkei Asia that the EV giant wanted to avoid disruptions due to geopolitical uncertainties.

• Tesla doesn't want its suppliers to make all of their stuff in China and Taiwan, per Nikkei Asia.
• Supply chain executives said Tesla wanted to avoid disruptions caused by geopolitical uncertainties.
• Tesla CEO Elon Musk said he didn't ask President Joe Biden to impose tariffs on Chinese EVs.

Tesla has asked its suppliers to start making their parts outside China and Taiwan, Nikkei Asia reported on Thursday.

The EV giant is looking to diversify its supply chain for non-China markets, the outlet reported, citing six supply chain executives familiar with the matter. The company hopes its request can be fulfilled by its suppliers by as early as next year, the outlet reported.

The executives said Tesla wanted to avoid potential supply chain disruptions due to geopolitical uncertainties in the Greater China region.

Tesla isn't the only American automaker looking to expand its supply chains.

"We serve several American automobile makers, and Tesla is the most aggressive in terms of trying to avoid the risks surrounding China and Taiwan," an electronics supplier executive told Nikkei Asia, adding that such a move would be more challenging and expensive.

According to the outlet, General Motors and Ford have raised similar questions to their suppliers, though they did not make an explicit request like Tesla.

Representatives for Tesla, General Motors, and Ford didn't immediately respond to requests for comment from BI sent outside regular business hours.

Tesla's supply chain maneuvers may seem peculiar considering how friendly its CEO, Elon Musk, has been with the Chinese authorities.

The mercurial billionaire made a surprise trip to China last month, where he met Premier Li Qiang, the country's second-highest-ranking politician.

The trip proved fruitful for Musk, as Chinese officials gave their in-principle approval for Tesla to roll out its Full Self-Driving (FSD) technology in the country, per Bloomberg.

On May 7, the state-owned newspaper China Daily reported that officials had also given their partial support to Musk's proposal to implement Tesla's FSD technology in China's taxi services.

And Tesla's Chinese connections don't just end there.

Last month, Musk revealed in an X post that he'd picked the robotaxi's projected August 8 launch date partly because "8/8 is a lucky number in China."

That said, the Tesla chief hasn't been oblivious to the risks of doing business in China.

During an earnings call in January, Musk raised the alarm about the threat posed by Chinese automakers like BYD and Li Auto.

"The Chinese car companies are the most competitive car companies in the world," Musk told investors. "If there are no trade barriers established, they will pretty much demolish most other car companies in the world."

On May 14, the Biden administration said it planned to implement a 100% tariff on Chinese EVs.

"The increase in the tariff rate on electric vehicles will protect these investments and jobs from unfairly priced Chinese imports," the White House said in its statement.

Musk, however, appeared to walk back his remarks in January. On Thursday, Musk said Tesla didn't ask for tariffs to be imposed.

"Tesla competes quite well in the market in China with no tariffs and no deferential support. In general, I'm in favor of no tariffs," Musk said in an interview at the VivaTech conference in Paris.

Musk's shifting rhetoric on China underscores the challenges companies face when navigating the geopolitical headwinds of US-China tensions.

For instance, chip giant Nvidia has been working hard to develop specialized offerings for the Chinese market in order to comply with prevailing US export restrictions.

But even that may be for naught since Chinese officials have asked domestic tech giants like Alibaba and Baidu to buy locally-made AI chips instead, per The Information.

"China is a very important market for the technology industry," Nvidia CEO Jensen Huang told the Financial Times in May 2023. "If we are deprived of the Chinese market, we don't have a contingency for that. There is no other China, there is only one China."