Tesla looks past China, Taiwan for parts supply

Electric vehicle giant Tesla is taking proactive measures to safeguard its supply chain by urging suppliers to establish production facilities outside of China and Taiwan. This strategic move comes in response to the growing geopolitical tensions in the region, which pose potential risks to the company's operations.

According to multiple sources with direct knowledge of the matter, Tesla has requested that suppliers producing components such as printed circuit boards, displays, and electronic control unit systems for its non-China market models shift their manufacturing to locations beyond China and Taiwan. The American EV maker cited mounting geopolitical risks in the Greater China region, particularly in light of the upcoming U.S. presidential election, as the driving force behind this request.

The primary objective is to develop alternative supply sources for markets outside of China, thereby mitigating the potential for supply chain disruptions. One Taiwan-based supplier revealed that Tesla aims to have components manufactured "out of China and out of Taiwan" (OOC and OOT) starting from next year's new projects.

Tesla's efforts extend beyond its Taiwanese suppliers, as the company has engaged in discussions with manufacturers in Japan, South Korea, and other Asian countries. Executives from Japanese electronics makers have confirmed their involvement in these conversations.

Suppliers are already taking action to comply with Tesla's directive. One component supplier is ramping up production capacity in Thailand to meet the demand for components manufactured outside of China and Taiwan. Another executive highlighted the adoption of the "China+1 strategy," which involves avoiding Taiwan alongside China in the supply chain.

While Tesla appears to be the most proactive in mitigating risks associated with China and Taiwan, other American automakers, such as General Motors and Ford, have also explored the possibility of relocating electronics production away from these regions. However, unlike Tesla, they have not yet issued formal requests to their suppliers.

The urgency behind Tesla's requests stems from the escalating tensions between Beijing and Taipei, exacerbated by factors such as Washington's export controls on advanced technologies to China and Taiwan's hosting of a visit by former U.S. House Speaker Nancy Pelosi in 2022. Chinese President Xi Jinping has intensified pressure on the island through repeated military drills and frequent flights over the Taiwan Strait.

Moreover, Tesla faces increasing competition from Chinese EV manufacturers like BYD, which claimed a 15% share of the global battery electric vehicle (BEV) market in the first quarter of 2024, surpassing Tesla's 19% share. This competition has prompted Tesla to explore parallel supply chains while maintaining a presence in China, as evidenced by CEO Elon Musk's recent visit to secure approval for the company's advanced driver-assist software.

The tech-heavy nature of EVs has put their supply chains at the centre of the U.S.- China technology rivalry. With China and Taiwan producing the bulk of vital electronics components, analysts suggest that it is logical for automakers like Tesla to request production capacity outside of these regions to prevent potential disruptions.