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Tesla has told suppliers to start building components and parts outside of China and Taiwan by as early as next year due to rising geopolitical uncertainties, Nikkei Asia has learned.
Suppliers making components such as printed circuit boards, displays and electronics control unit systems for Tesla models sold outside China received the request from the Elon Musk-owned company, according to six supply chain executives with direct knowledge of the matter.
The request cited mounting geopolitical risks ahead of the US presidential election, the executives said, adding that the move was aimed at building alternative supply sources for non-China markets to prevent supply chain disruptions.
“We got the request from Tesla that they hope to have components that are both ‘OOC’ and ‘OOT’, meaning out of China and out of Taiwan,” a Taiwan-based supplier to Tesla and others told Nikkei Asia. “They hope such a proposal can materialise from next year’s new projects.”
Tesla has also discussed the matter with suppliers from Japan, South Korea and elsewhere in Asia, the people said. An executive from a Japanese electronics maker said his company was among those Tesla had talked to. Tesla did not respond to Nikkei’s request for comment.
An executive from another component supplier said his company was increasing capacity in Thailand because of the request. “To many clients, including Tesla, the so-called China-plus-one strategy includes avoiding Taiwan as well,” the executive said.
China views Taiwan, a democratically governed island, as part of its territory and has not ruled out taking it by force. Last week the Chinese military conducted several drills around Taiwan.
Sources said other US carmakers such as General Motors and Ford had asked suppliers to study moving electronics production beyond China and Taiwan but unlike Tesla had not made a formal request to do so. Ford and GM declined to comment on details.
“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 said. “It’s really hard and costly to do OOC and OOT, as that is where the mature supply chain is.”
Tesla’s requests came before the US announced it would sharply raise tariffs on Chinese electric vehicles and before Taiwan’s new President Lai Ching-te of the China-sceptic Democratic Progressive party took office on May 20.
Tensions between Beijing and Taipei have escalated in recent years amid Washington’s export controls on advanced technologies to China. They reached a new high after Taiwan hosted a visit from then-House Speaker Nancy Pelosi and other US lawmakers in 2022.
Chinese President Xi Jinping has stepped up pressure on the island with repeated live military drills and jets flying over the median line of the Taiwan Strait on an almost daily basis.
Tesla’s pursuit of parallel supply chains also comes as the company faces rising competition from Chinese EV makers in China and other markets. BYD had a 15 per cent share of the global market for battery EVs in the first quarter of 2024, while Tesla’s leading share dropped to 19 per cent from 22 per cent the previous year, Counterpoint Research data shows.
This competition does not mean the company is giving up on China. Musk — who has echoed Beijing’s contentious description of Taiwan as an “integral part” of China — made a surprise visit to the country in April in hopes of securing approval for full self-driving, the company’s most advanced driver-assist software, in the company’s second-largest market.
Beijing has indicated it is favourable to the move, touting Tesla as a “successful example of US-China economic and trade co-operation”.
China and Taiwan produce the bulk of the world’s vital electronic parts and components, including displays, printed circuit boards, camera lenses and semiconductors. About 87 per cent of Apple’s top suppliers, for example, have production facilities in China, according to a Nikkei Asia analysis.
The rise of tech-heavy EVs has put these supply chains in the political crosshairs. “Since the second half of last year, it’s getting clearer that EV is the newest battleground of the US-China tech war,” Chiu Shih-fang, a tech supply chain analyst with the Taiwan Institute of Economic Research, told Nikkei Asia.
Requesting production capacity outside China, Chiu said, made sense for Tesla, which competes more directly with Chinese marques such as BYD than other western or Japanese brands do.
“It is logical for automobile makers like Tesla to make such requests to suppliers in order to prevent any supply chain disruptions due to the geopolitical uncertainties,” she said. “This is also why we are seeing so many component suppliers speeding up new investments in south-east Asia and Mexico.”
A version of this article was first published by Nikkei Asia on May 23. ©2024 Nikkei Inc. All rights reserved.
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