Tesla Pushes Suppliers to Produce Parts Outside of China and Taiwan

Tesla has urged suppliers to begin producing parts outside China and Taiwan next year, citing geopolitical risks in Greater China. The move aims to develop alternative supply sources for non-China markets to avoid disruptions.

Tesla Intensifies Efforts to Shift Supply Chains Away from China and Taiwan Amid Heightened Geopolitical Risks

According to Nikkei Asia, the request cited increasing geopolitical concerns in the Greater China region ahead of the following US presidential election, who added that the action is intended to develop alternate supply sources for non-China markets to avoid 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 source from a Taiwan-based supplier to Tesla and others told Nikkei Asia. "They hope such a proposal can materialize from next year's new projects."

According to reports, Tesla is also discussing the issue with other Asian suppliers from Japan, South Korea, and beyond. An official from a Japanese electronics manufacturer told Nikkei Asia that Tesla had contacted his company.

An official from another component supplier stated that his company was increasing capacity in Thailand in response to the request. "To many clients, including Tesla, the so-called China+1 strategy also includes avoiding Taiwan," the manager stated.

China regards Taiwan as a democratically governed island as part of its territory and has not ruled out taking it over by force. On May 23, the Chinese army stated that it was conducting multiple military drills around Taiwan. According to sources, other American automakers, such as General Motors and Ford, have urged suppliers to investigate relocating electronics production outside of China and Taiwan. However, unlike Tesla, they have yet to make a formal request.

"We serve several American automobile makers, and Tesla is the most aggressive in 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 Navigates Geopolitical Tensions and Market Competition with Strategic Supply Chain Shifts

Tesla's requests occurred before the United States declared it would significantly increase duties on Chinese EVs and before Taiwan's new president, Lai Ching-te of the China-skeptic Democratic Progressive Party, took office on May 20.

Tensions between Beijing and Taipei have risen recently due to Washington's export limits on advanced technologies to China. They reached a new high in 2022 when Taiwan hosted a visit by former House Speaker Nancy Pelosi and other US lawmakers. Chinese President Xi Jinping has increased pressure on the island by conducting daily live military drills and flying military jets over the Taiwan Strait's middle line.

Tesla's pursuit of alternative supply chains comes as the business faces increased competition from Chinese EV manufacturers in China and third countries. Counterpoint Research statistics show BYD had a 15% share of the global battery-electric vehicle (BEV) market in the first quarter of 2024. Tesla's lead share fell to 19% from 22% the previous year.

This rivalry does not imply that the corporation is abandoning China. Tesla CEO Elon Musk paid a surprise visit to the Netherlands in April, hoping to secure certification for FSD, the company's most potent driver-assist software, in its second-largest market. Beijing has suggested supporting the move, citing Tesla as a "successful example of US-China economic and trade cooperation."

Musk also backed Beijing's contentious claim that Taiwan is an "integral part" of China.

China and Taiwan manufacture most of the world's essential electronics parts and components, such as displays, printed circuit boards, camera lenses, and semiconductors. According to Nikkei Asia, over 87% of Apple's top suppliers have production facilities in China.

The rise of technologically advanced 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 U.S.-China tech war," Chiu Shih-fang, a tech supply chain analyst with the Taiwan Institute of Economic Research, told Nikkei Asia.

Chiu explained that Tesla's request for production capacity outside of China made sense because the company competes more directly with Chinese manufacturers like BYD than with other Western or Japanese brands.

"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 Southeast Asia and Mexico."

Tesla did not return Nikkei's request for comment. Ford and GM declined to comment on specifics, but Ford stated that it is constantly "working to build a resilient, high-quality, and cost-competitive supply chain."

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