Tesla is urging its suppliers to eliminate China-sourced components from vehicles produced in the United States, amid escalating trade tensions. The company has already replaced several such parts and plans to complete the transition within one to two years. This shift reflects broader industry efforts to localize supply chains in response to tariff uncertainties.
Tesla's directive to suppliers comes as U.S.-China trade relations remain strained, with fluctuating tariffs complicating pricing for electric vehicles manufactured in the U.S. According to reports from The Wall Street Journal, citing people familiar with the matter, the automaker has been ramping up North American sourcing for its U.S. factories over the past two years to mitigate tariff threats on rare-earth materials and semiconductors.
The push occurs against a backdrop of challenges in Tesla's China operations. Data from the China Passenger Car Association indicates that sales of China-made Tesla vehicles dropped sharply in October, reversing a previous month's increase. Production of the Model 3 and Model Y at Gigafactory Shanghai also declined significantly from September levels, even as overall exports reached a two-year high.
Despite these hurdles, Tesla maintains a strong position in U.S. manufacturing. Earlier this year, its S3XY lineup—comprising the Model S, Model 3, Model X, and Model Y—claimed the top four spots on Cars.com's "American-Made Index," with the Model 3 leading. Tesla has topped this index multiple times, highlighting its ongoing localization efforts.
Reducing dependence on China is a common strategy among automakers and tech companies like Apple, but it's a complex process. China serves as a key global manufacturing hub for cost-effective components, requiring significant time, investment, and alternative sourcing to fully phase out such parts. General Motors has similarly instructed its suppliers this week to remove China-made components entirely, underscoring the industry-wide scramble in 2025.