Tesla has told suppliers to start building components and parts outside of both 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 use in Tesla models sold outside of China have received the request from the American EV maker, according to six supply chain executives with direct knowledge of the matter.

The request cited mounting geopolitical risks in the Greater China region ahead of the upcoming U.S. presidential election, the sources said, adding that the move is 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 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."

Tesla also discusses the matter with other Asian suppliers from Japan, South Korea and elsewhere, sources said. An executive from a Japanese electronics maker told Nikkei Asia that his company was among those Tesla had talked to.

An executive from another component supplier said his company was ramping up capacity in Thailand because of the request. "To many clients, including Tesla, the so-called China+1 strategy includes avoiding Taiwan as well," the executive said.

China views Taiwan, a democratically ruled island, as part of its territory and has not ruled taking it over by force. On Thursday morning, the Chinese army announced it was conducting several military drills around Taiwan.

Sources say other American car makers such as General Motors and Ford have asked suppliers to study moving electronics production beyond China and Taiwan but unlike Tesla have not made a formal request to do so.

"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 U.S. announced it would sharply raise tariffs 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 escalated in recent years amid Washington's export controls on advanced technologies to China and reached a fresh high after Taiwan hosted a visit from former House Speaker Nancy Pelosi and other U.S. lawmakers in 2022. Chinese President Xi Jinping has stepped up pressure on the island with repeated live military drills and military 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 both China and third countries. BYD had a 15% share of the global market for battery electric vehicles (BEV) in the first quarter of 2024, while Tesla's leading share dropped to 19% from 22% the previous year, Counterpoint Research data shows.

This competition does not mean the company is giving up on China, however.

Tesla CEO Elon Musk made a surprise visit to the country in April in hopes of securing approval for FSD, the company's most advanced driver-assist software, in the company's second-largest market. Beijing has indicated it was favorable to the move, touting Tesla as a "successful example of U.S.-China economic and trade cooperation."

Musk has also echoed Beijing's contentious description of Taiwan as an "integral part" of China.

China and Taiwan produce the bulk of the world's vital electronics parts and components, including displays, printed circuit boards, camera lenses and semiconductors. Around 87% of Apple's top suppliers, for example, have production facilities in China, according to 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 U.S.-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 of China, Chiu said, made sense for Tesla, which competes more directly with Chinese brands like 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 Southeast Asia and Mexico."

Tesla did not respond to Nikkei's request for comment. Ford and GM declined to comment on specifics, though Ford said it is continually "working to build a resilient high-quality and cost-competitive supply chain."

By: DocMemory
Copyright © 2023 CST, Inc. All Rights Reserved