Tesla has directed its suppliers and manufacturing partners to diversify their supply chains and move a portion of their components & parts manufacturing units out of both China and Taiwan as early as next year due to escalating geopolitical uncertainties
The American electric vehicle (EV) manufacturer has instructed suppliers responsible for producing components like printed circuit boards, displays, and electronics control unit systems for Tesla models sold outside of China to relocate their operations, as reported by Nikkei Asia.
This directive has been issued to ensure that Tesla is able to mitigate any potential disruptions in the supply chain that may arise from geopolitical tensions and the ongoing tech war in the Greater China region, particularly in light of the upcoming US presidential election, in which former president Donald Trump is emerging as the favourite to win.
According to several supply chain executives familiar with the matter, Tesla’s request is partly because of their desire to establish alternative supply sources for non-China markets. The sources told Nikkei that Tesla is urging suppliers to manufacture components that are both “out of China” (OOC) and “out of Taiwan” (OOT) to diversify its supply chain.
“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,” stated a source to Nikkei, from a Taiwan-based supplier to Tesla and other companies.
Tesla has engaged in discussions with various Asian suppliers, including those from Japan, South Korea, and elsewhere, to explore the feasibility of this directive. One executive from a Japanese electronics maker confirmed their involvement in talks with Tesla.
Meanwhile, another component supplier executive disclosed that their company is increasing capacity in Thailand in response to Tesla’s request, emphasising that Tesla’s strategy aligns with a broader industry trend of adopting a China Plus One strategy to minimise risks.
The geopolitical tensions between China and Taiwan are at an all time high, with China conducting military drills around Taiwan. Additionally, the US’s decision to raise tariffs on Chinese EVs and the change in leadership in Taiwan have further fueled uncertainties.
Tesla’s move is not unique among American carmakers, others such as General Motors and Ford have expressed interest in diversifying their electronics production beyond China and Taiwan.
Despite facing competition from Chinese EV makers, Tesla remains committed to the Chinese market. CEO Elon Musk’s recent visit to China aimed to secure approval for the company’s advanced driver-assist software, highlighting the significance of China as Tesla’s second-largest market.
As the EV industry continues to evolve, the geopolitical landscape surrounding supply chains becomes increasingly complex. Tesla’s strategic decision reflects the need to navigate these challenges and ensure a resilient supply chain in the face of geopolitical uncertainties.
