Tesla Urges Tariff Exemption for Chinese-Made Car Computer 'Brain'

Tesla has asked the Trump administration to exempt the Chinese-made car computer "brain" of its new Model 3 sedan from 25 percent tariffs imposed in August, saying they threaten the electric carmaker's bottom line.

"Increased tariffs on this particular part cause economic harm to Tesla, through the increase of costs and impact to profitability," the company said in a previously unreported request for tariff relief from the government.

Led by tech billionaire Elon Musk, Tesla is among a host of companies, including No. 1 US automaker General Motors Co, to warn of growing costs related to the tariff war between the world's two largest economies.

The Chinese-made computer, used by Tesla in the car assembled in Fremont, California, was among $16 billion (roughly Rs. 1.1 lakh crores) in imports that were hit with 25 percent tariffs by the United States Trade Representative's Office in 2018.

In a redacted request posted on a government website by the USTR on December 17, Tesla did not identify the supplier of the computer. But it said it had been unable to find another manufacturer "with the required specifications, at the volume requested and under the timelines necessary for Tesla's continued growth."

Tesla, which called the Model 3's computer "the brain of the vehicle," added that "choosing any other supplier would have delayed the (Model 3) program by 18 months with clean room setup, line validation, and staff training."

Using a new supplier "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," Tesla added in its request for tariff relief.

Tesla declined to comment on the tariff matter on Friday. But it has been aggressively cutting costs as it works to meet production goals for the Model 3, which has become a top-selling luxury sedan on the US market alongside the larger Model S.

Other automakers have sought similar exemptions but have not yet received an answer.

GM in late July sought an exemption to a 25 percent US tariff on its Chinese-made Buick Envision sport utility vehicle. The Envision accounted for nearly 15 percent of US Buick sales last year, even as sales fell by 27 percent.

In October, GM also sought exclusions for about two dozen parts, including push button ignition switches and transmission bearings. Nissan Motor Co and Fiat Chrysler Automobiles NV have also filed exclusion requests for parts, while Uber Technologies asked for an exclusion for electric bikes rented through the Uber app.

The Trump administration has imposed 25 percent tariffs on a total of $50 billion in annual Chinese exports and 10 percent tariffs on an additional $200 billion in Chinese exports. The tariffs were in response to what the Trump administration calls China's unfair trade practices.

© Thomson Reuters 2019