The US-China trade war is setting some major developments in motion, with companies like Huawei and Apple already feeling the heat. Now, the latest addition to this list is Tesla.
The company recently made a request to the Trump administration to be exempt from the 25% tariff imposed on Chinese goods. Why would an American company ask for tax exemption on a Chinese product?
The reason is that the upcoming Tesla Model 3 sedan sources its computing unit from China. Hence, when that product hits the US commerce, a 25% tax will be imposed on it, hurting Tesla’s overall profit margin.
“Increased tariffs on this particular part cause economic harm to Tesla, through the increase of costs and impact to profitability,” stated the company.
Tesla, GM, and More: The Tariffs Are Killing the Profit Margins of US Companies!
However, Tesla is not the only company in the list of US companies that have asked the government for a tax exemption. Carmaker General Motors too has raised serious concerns about the recent development that is taking place between the US and China.
The company has also requested for an exemption from the 25% tariff on Chinese imports, specifically for their Buick Envision, which is made in China. In addition, Fiat Chrysler, and Nissan Motors are also seeking exemptions for different car parts being imported from China.
The assembly of the computing unit that the Model 3 will use, is set up in-house at Fremont, California. The parts sourced from China will amount to 16 billion US dollars, and that is without the 25% tariff added.
To the question whether Tesla could approach some other tech supplier that would help them build/source the parts, the answer came in the form of an unofficial government report where the company states that they indeed tried that. However, finding a supplier with the same capabilities as the Chinese one proved to be unsuccessful.
Tesla chose to keep the name of their current supplier a secret.
Why Tesla is in a tough spot?
So, if Tesla chooses to opt for another supplier, the company would be missing deadlines and the business plan for 2019 will be greatly affected. By Tesla’s preliminary evaluation, such a move would delay the Model 3 development and launch by 18 months.
This is something Tesla cannot do presently due to the rising competition scenario, in the electric car segment.
By choosing a new supplier, additional cocnerns about safety would also crop up. The company stated that a change of supplier would “substantially increases the risk of poor part quality that could lead overall vehicle quality issues that would impact the safety of our vehicles and the consumer acceptance of the final product”
The 25% tax on Chinese imports and 10% tax on Chinese exports in the Trump Administration’s answer to what they call “China’s unfair trade practices”. The jury is still out on these requests from these popular and largest companies in America and we will see how they turn out in the following days.